Fed doesn’t expect inflation to hit 2% target until 2025, won’t commit to rate cuts

Federal Reserve Chair Jerome Powell said on Tuesday that he didn’t anticipate inflation returning to its 2% target before the end of next year at the earliest — and would not commit to cutting interest rates this year.

Speaking at an economic policy conference in Portugal, Powell said policymakers need more evidence that inflation is in check before the Fed begins slashing 23-year-high interest rates.

“We just want to understand that the levels that we’re seeing are a true reading on what is actually happening with underlying inflation,” Powell said the conference sponsored by the European Central Bank.

Fed Chair Jerome Powell said that the central bank needed to see more evidence of cooling inflation before slashing interest rates. AP

“We want to be more confident, and frankly because the US economy is strong … we have the ability to take our time.”

Data for May showed the Fed’s preferred measure of inflation did not increase at all that month, while the 12-month rate of price increases has ebbed to 2.6%, still above the central bank’s 2% target but on the way down.

Powell said that the latest numbers “do suggest that we’re getting back on a disinflationary path” but that “more data like what we’ve been seeing recently” is needed before the central bank can lower interest rates.

“We’ve made quite a bit of progress and in bringing inflation back down to our target,” the Fed chair said.

The blue-chip Dow was flat after Powell’s comments in a holiday-shortened week.

The Fed has kept its benchmark policy interest rate steady in the 5.25%-5.5% range since last July.

Investors on Wall Street had originally anticipated as much as three interest rate cuts beginning this summer, but stubbornly high inflation forced the Fed to shelve those plans.

Wall Street investors are hopeful that the Fed will cut interest rates at least once later this year. JUSTIN LANE/EPA-EFE/Shutterstock

Now the most optimistic forecasts call for one interest rate cut sometime this fall.

Powell declined to specify whether a September rate cut was on the table.

“We’re well aware that if we go too soon, that we can undo the good work we’ve done,” Powell said.

“If we do it too late, we could unnecessarily undermine the recovery and the expansion.”

Powell said he saw “disinflationary” data indicating that the rate of price increases were inching closer to the Fed’s 2% target. ZUMAPRESS.com

The Fed will keep an eye on employment and inflation data, including Friday’s release of the monthly employment report for June.

The latest CPI data for June is scheduled for release on July 11.

“We’re getting a gradually cooling economy, a gradually cooling labor market, progress on inflation, 4% unemployment, 2% growth,” Powell said.

“We’re getting kind of what we want to have.”

With Post Wires