Powell Indicates Fed Won’t Wait until Inflation is Down to 2% before Cutting Rates

Inflation
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Federal Reserve Chair Jerome Powell said that the Fed Bank will not wait until inflation hits 2% to cut rates. Powell while speaking at Washington. DC referenced that central bank policy works with keeping the monetary gains in mind. Powell further added “The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.”

Instead the Fed has stronger confidence in the economy and is hopeful that the inflation will fall below 2% level.  He said further “What increases that confidence in that is more good inflation data, and lately here we have been getting some of that.” Powell appeared for the first time in media after the consumer price index report for June showed cooling inflation with prices actually falling month over month.

The Central bank’s next policy meeting is scheduled to be held at the end of July. Powell said that he was not intending to make any signals about when the Fed might start to cut interest rates. Powell made the remarks as part of a discussion with David Rubenstein, chairman of the Economic Club of Washington, D.C., and co-founder of The Carlyle Group, where the Fed chair previously worked.

The target range for federal funds rate is currently 5.25% to 5.50% which is up from the range of 0% to 0.25% during the Covid-19 pandemic, and a range of 1.50%-1.75% before that health crisis. Mortgage rates are influenced by the federal fund rate directly or indirectly and it also has an effect of cost of money in the economy.

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