Federal Reserve Chairman Jerome Powell said Monday that the central bank will not wait until inflation hits 2% to cut interest rates.
Speaking at the Economic Club of Washington, D.C., Powell pointed to the idea that central bank policy operates with “long and variable lags” to explain why the Fed doesn’t wait until it reaches its target.
“That means that if you wait for inflation to come down to 2 percent, you've probably waited too long, because the tightening that you're doing, or the level of tightening that you're doing, is still having effects that are likely to push inflation below 2 percent,” Powell said.
Powell said the Fed is instead looking for “greater confidence” that inflation will return to 2%.
“What increases confidence in that is more good inflation data, and recently we've started to get some of that,” he said.
Powell also said he believes a “hard landing” for the U.S. economy is not a “likely scenario.”
Monday was Powell's first public appearance since the June CPI report showed inflation slowing, with prices actually falling month-over-month.
Powell said at the start of his appearance that he did not intend to give any indications about when the central bank would begin cutting interest rates. The central bank is scheduled to hold its next monetary policy meeting in late July.
Powell made the comments as part of a discussion with David Rubenstein, president of the Economic Club of Washington, D.C., and co-founder of the Carlyle Group, where the Fed chairman previously served.
The target range for the federal funds rate is currently 5.25% to 5.50%. That’s up from a range of 0% to 0.25% during the COVID-19 pandemic and a range of 1.50% to 1.75% before the health crisis.
The federal funds rate affects, directly or indirectly, the cost of money throughout the economy, such as mortgage rates.
“People I don’t know are always saying, ‘Hey, lower interest rates.’ Someone said that in the elevator this morning,” Powell joked.
