Federal Reserve Chairman Jerome Powell said on Monday that the central bank will not wait until inflation reaches 2% to cut interest rates.
Speaking at the Economic Club of Washington DC, Powell referenced the idea that central bank policy works with “long and variable lags” to explain why the Fed did not wait for the target to hit.
“The implication is that if you wait until inflation drops to 2%, you’ve probably waited too long, because the tightening that you’ve done, or the level of tightness that you’ve had, is still having an effect that could keep inflation below 2%,” Powell said. .
However, the central bank is looking for “greater confidence” that inflation will return to the 2% level, Powell said.
“What’s adding to that confidence is better inflation data, and we’ve had some of that lately,” he said.
Powell also said he thinks a “hard landing” for the US economy is not a “possible scenario.”
Monday was Powell’s first public appearance since the consumer price index report for June showed cooling inflation, with prices falling on a monthly basis.
Powell said at the start of his appearance that he did not intend to signal when the Fed might start cutting interest rates. The central bank’s next policy meeting is at the end of July.
Powell made the comments as part of a discussion with David Rubenstein, chairman of the Economic Club and founder of The Carlyle Group, where Powell previously worked.
The target range for the federal funds rate is currently 5.25% to 5.50%. This increased from a range of 0% to 0.25% during the Covid-19 pandemic, and a range of 1.50%-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 will always say, ‘hey, cut the rates.’ Someone said it in the elevator this morning,” Powell said jokingly.
