Powell says Fed wants to see ‘more good inflation readings’ before it can cut rates

WASHINGTON — Federal Reserve Chairman Jerome Powell on Friday reiterated a message he has been sounding in recent weeks: While the Fed expects to cut rates this year, it won’t be willing to do so until it sees “more good inflation numbers” and more of them confident that annual price increases will decline towards the 2% target.

Powell said at a conference at the Federal Reserve Bank of San Francisco that he still expects “inflation to fall to 2% on a sometimes bumpy path.” But central bank policymakers, he said, need to see further evidence before they would cut rates for the first time since inflation shot to a four-decade peak two years ago.

The Fed responded to that wave of inflation by aggressively raising its policy rate from March 2022. She would eventually raise her policy rate eleven times to a 23-year high of around 5.4%. The resulting higher borrowing costs helped bring inflation down – from a peak of 9.1% in June 2022 to 3.2% last month. But annual price increases still remain above the Fed’s 2% target.

Forecasters had expected higher interest rates would push the United States into a recession. Instead, the economy just kept growing – six straight quarters of annual growth of 2% or more. The labor market has also remained strong. The unemployment rate has been below 4% for more than two years, the longest streak since the 1960s.

The combination of strong growth and declining inflation has raised hopes that the Fed will engineer a “soft landing” — rein in inflation without triggering a recession. The central bank has indicated that it expects to cut policy and interest rates three times this year.

But the strength of the economy, Powell said, means the Fed is under no pressure to cut rates and can wait to see how the inflation numbers come in.

When asked by the moderator of Friday’s discussion, Kai Ryssdal of public radio’s “Marketplace” program, whether he would ever be willing to declare victory over inflation, Powell responded:

“We’ll curse it,” he said. “I’m a superstitious person.”