Fed Chair Powell stresses need for sustained inflation improvement before rate cuts

Federal Reserve Chair Jerome Powell underscored the central bank’s cautious approach towards interest rate cuts, emphasizing the necessity for sustained positive inflation trends before any monetary policy adjustments. Addressing a conference at the Federal Reserve Bank of San Francisco, Powell reiterated the Fed’s stance that while a rate cut is anticipated this year, it hinges upon the observation of consistent favorable inflation metrics aligning with the targeted 2% benchmark.

Despite expressing confidence in inflation moderating towards the desired level, Powell highlighted the prerequisite for conclusive evidence before initiating the first rate cut since the peak inflation period two years prior. The Fed’s response to the preceding inflation surge involved a series of aggressive interest rate hikes, peaking at 5.4% after 11 consecutive increases commencing in March 2022. This tightening cycle contributed to a notable decline in inflation, although figures continue to surpass the Fed’s established target.

Contrary to expectations of a recession spurred by elevated interest rates, the economy demonstrated resilience, sustaining growth for six consecutive quarters at an annual rate exceeding 2%. Concurrently, the labor market exhibited robustness, maintaining an unemployment rate below 4% for an unprecedented duration since the 1960s.

The convergence of persistent economic expansion and a gradual slowdown in inflation fosters optimism regarding the Fed’s endeavor to achieve a controlled economic adjustment, commonly referred to as a “soft landing.” While signaling a potential reversal in policy with three anticipated rate cuts this year, Powell emphasized that the current economic vigor alleviates immediate pressure for such measures, allowing for a prudent assessment of inflationary indicators.

In response to inquiries regarding a potential declaration of victory over inflation, Powell refrained from definitive statements, citing a superstitious inclination and a reluctance to tempt fate.