US Fed is ‘not far’ from gaining confidence needed to cut interest rates, says Powell

The US Federal Reserve was “not far” from gaining the confidence it needs in falling inflation to begin cutting interest rates, said its Chair Jerome Powell on Thursday.

Speaking on the current stance of monetary policy in a hearing before the Senate Banking Committee, Powell said, “I think we are in the right place.”

“We are waiting to become more confident that inflation is moving sustainably down to 2%. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession,” he said.

Powell expressed faith that the recent surge in inflation and robust economic data will not interrupt the ongoing decline in price pressures established last year. 

Despite his hesitancy to declare the inflation battle finished, Powell cautioned the Senate panel, as he did before the House Financial Services Committee on Wednesday, that achieving further progress towards the Fed’s 2% target is not assured, Reuters reported.

Read here: US Fed signals rate cuts in 2024; Powell says progress towards 2% inflation target ‘not assured’

The recent data showed headline inflation, as measured by the Fed’s preferred Personal Consumption Expenditures price index, at 2.4%, with a related measure of underlying inflation at a slightly higher 2.8%.

But both have been “coming down sharply since the middle of last year,” Powell said. “We’ve got a ways to go on that, but we've made a lot of progress.”

Powell’s comments raised expectations that the central bank will lower the interest rate in the months ahead from the current levels of between 5.25% and 5.5%, which are at more than a 20-year high since July.

However, Powell’s testimony before the Senate committee and a House panel on Wednesday was dominated less by monetary policy and more by an ongoing debate about the Federal Reserve Bank’s regulatory proposals, as well as a host of other issues, including housing policy and whether the Fed would issue a central bank digital currency, Reuters reported.

The Federal Open Market Committee (FOMC) will next meet on March 19-20 and will issue a new policy statement as well as updated rate and economic projections that should shed more light on policymakers' expectations for the year.

(With inputs from Reuters)