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Fed: Powell acknowledges progress in inflation and relies on similar data to lower rates

Federal Reserve Chairman, Jerome Powellwelcomed the recent inflation data on Tuesday and stated that if they continue to arrive good data It will become clearer when to lower interest rates.

Powell said “more positive data“would strengthen confidence that inflation is falling toward the U.S. central bank’s 2% target and that recent readings point to”a modest further progress” in prices.

In testimony prepared for a Senate hearing on Tuesday, Powell warned that cutting interest rates too little or too late could put the economy and the job market at risk.

The most recent inflation readings have shown some modest progress and further good data would strengthen our confidence that inflation is moving sustainably towards 2%.“We are very excited about the future,” the Fed chairman said Tuesday during his remarks before the US Senate Banking Committee as part of his semi-annual hearing.

Powell insisted that the Fed does not believe it is “appropriate” reduce interest rates until there is “gained greater confidence that inflation is moving sustainably towards 2%.”

Incoming data for the first quarter of this year did not support that increased confidence. However, the most recent inflation readings have shown some modest gains.“, he added.

In May, the last known data, inflation fell by one-tenth to 3.3%, and the data for June will be known this week.

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We continue to make decisions on a meeting-by-meeting basis. We know that reducing policy easing too soon or too much could halt or even reverse the progress we have seen on inflation.“Powell added.

The president of the US central bank presented today the half-yearly policy report, which was released last Friday, and in which the Fed states that it still does not have enough confidence to begin implementing interest rate cuts, although the outlook is favorable thanks to the recent falls in inflation and a more balanced labor market.

Long-term inflation expectations, the Fed notes, “are within the range of values ​​observed in the decade prior to the pandemic and continue to be generally consistent“with the longer-term goal of reaching 2%.

As for the labor market, another of the indicators that the Fed is closely watching is the increase in employment in these months.has been strong and the unemployment rate remains low“, he said.

Inflation target

U.S. central bankers are aiming to bring inflation back to the 2% target following a post-pandemic surge in prices. While the labor market has remained under pressure from higher interest rates, a spike in the unemployment rate has increased pressure on Fed policymakers to begin cutting borrowing costs.

Traders now see a September rate cut as more likely. Powell’s comments suggest the Federal Open Market Committee is unlikely to cut rates when it meets later this month.

Fed policymakers have welcomed recent data showing inflation is slowing again after a surge in prices earlier this year, though several other members have also said they need more confidence that the trend will continue before cutting borrowing costs.

The Fed’s preferred measure of inflation rose 2.6% in the 12 months through May, up from 7.1% in June 2022. While unemployment remains low at 4.1%, it has risen in each of the past three months.

Several economists warn that a slowdown in the labor market is underway and could worsen. The number of unemployed people rose in June to the highest level since early 2022, when that measure was declining rapidly.

Powell called the labor market “strong, but not overheated”, adding that the central bank’s restrictive stance is acting to achieve a better balance between supply and demand.

Another increase in the unemployment rate in the July report could challenge our baseline scenario of a rate cut this year in December, raising the possibility of two cuts starting in September.“, said Yelena Shulyatyevasenior economist at BNP Paribas.

The Fed has kept its policy rate at what it describes as a restrictive 5.25% to 5.5% level for a year. Futures traders have almost fully priced in a cut for the policy meeting on Sept. 17-18, less than two months before the U.S. election.

With information from EFE and Bloomberg

Source: Gestion

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