U.S. Federal Reserve Chairman Jerome Powell announces that interest rates will remain unchanged during a press conference at the Federal Reserve's William McChesney Martin Building on June 12, 2024 in Washington, D.C.
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Federal Reserve Chairman Jerome Powell on Tuesday expressed satisfaction with the progress made on inflation over the past year but said he wants to see more before he is confident enough to start cutting interest rates.
“We have made a great deal of progress in returning inflation to our objective,” Powell said at a central bankers' forum in Sintra, Portugal.
“The latest reading (of inflation) and the previous reading to a lesser extent suggest that we are returning to a deflationary path. We want to be more confident that inflation is moving sustainably towards 2% before we begin the process of reducing or easing monetary policy,” he added.
Powell spoke at a forum that also included European Central Bank President Christine Lagarde and Brazil's central bank governor Roberto Campos Neto. The forum was hosted by the European Central Bank and moderated by CNBC's Sarah Eisen.
The comments come as markets are closely watching the moves of the Federal Reserve and its global peers as signs of easing inflation emerge and some central banks, including the European Central Bank, begin to slowly cut interest rates.
The Commerce Department’s personal consumption expenditures price index, which the Federal Reserve focuses on as its main gauge of inflation, rose 2.6% over 12 months in May. That level has steadily declined from about 4% a year ago, though policymakers don’t expect it to reach the Fed’s 2% target until 2026.
While Powell said he saw progress on inflation, he cautioned against moving too early and jeopardizing the downward trajectory of price increases, which reached their highest pace since the early 1980s two years ago.
“We are fully aware that if we delay too much, we could undo the good work we have done. If we delay too much, we could unnecessarily undermine the recovery and the expansion,” he said.
Powell added that the risks of moving too late versus moving too early are better balanced this year as inflation has eased and the economy and labor market remain strong. By contrast, the Fed spent much of last year worrying that cutting rates too early and allowing inflation to resume its upward trajectory poses a greater risk.
Earlier this year, markets were pricing in at least six quarter-point rate cuts from the Fed. Since then, markets have been revised to expect two cuts, one in September and one before the end of the year. However, members of the rate-setting Federal Open Market Committee expected only one cut at their June meeting.
Asked if he thought the Fed might cut interest rates in September, Powell replied: “I'm not going to talk about any specific dates here today.”
He was also asked if he was concerned about the political climate, specifically whether Donald Trump, a fierce critic of Paul, would win the presidential election in November.
“I don't focus on that at all, and it's not just a point of discussion. I really think we continue to do our jobs,” he said.
