Federal Reserve Chairman Jerome Powell spoke publicly for the first time on Tuesday since the central bank’s preferred inflation gauge showed price growth in May at its slowest rate in more than three years.
While Powell remained cautious, he acknowledged that recent data suggests things are heading in the right direction.
Jennifer Schonberger of Yahoo Finance reports:
Powell said Tuesday he was encouraged by slowing inflation but stressed he believes the central bank needs to see more evidence before cutting interest rates.
The two most recent inflation readings, from April and May, “suggest that we are returning to a disinflationary trajectory,” Powell said on a panel at the European Central Bank meeting in Portugal.
Powell’s comments came days after the latest reading of the “core” personal consumption expenditures (PCE) index, the Fed’s preferred inflation target, rose 2.6% in May, down as expected from 2.8% in April.
Month-on-month inflation rose 0.1%, also in line with expectations and down from 0.2% in April.
The reading provides fresh support for a rate cut later this year and eases concerns that grew during the first quarter that higher-than-expected inflation could upend plans for monetary policy easing in 2024.
Despite another encouraging sign that inflation is easing, the central bank is unlikely to cut interest rates at its next meeting in late July.
Powell did not respond to a question about whether the Fed could cut rates as early as September.
Instead, he stressed that the Fed needs more time and evidence that inflation is declining sustainably toward its 2% target, and noted that the central bank can afford to be patient given a strong jobs market that is gradually cooling.
“We’ve made a lot of progress,” Powell said. “We just want to understand that what we’re seeing is an accurate representation of where underlying inflation really is.”
