December 4, 2024
Powell Suggests Fed Will Cut Rates Before Inflation Hits 2%

Federal Reserve Chairman Jerome Powell announced Monday that the central bank does not plan to wait for inflation to hit 2% before cutting interest rates. In a speech at the Economic Club of Washington, D.C., Powell noted that central bank policies have “long and variable lags,” justifying why the Fed will not delay action until it reaches its target. “If you’re waiting for inflation to hit 2%, you’ve probably waited too long, as the current tightening could push inflation below that threshold,” Powell said. Instead, the Fed is aiming for “greater confidence” that inflation will return to 2%, he added. “The improved inflation data we’ve seen recently reinforces that confidence,” Powell said. He also said a “hard landing” for the U.S. economy is unlikely.

Monday marked Powell’s first public appearance since June’s CPI report showed inflation was falling, with prices falling month after month. At the start of his speech, Powell said he wasn’t planning to signal when the Fed might start lowering interest rates. The central bank’s next policy meeting is scheduled for late July. Powell shared his remarks in a conversation with David Rubenstein, president of the Economic Club of Washington, D.C., and co-founder of the Carlyle Group, where Powell previously worked.

The current target range for the federal funds rate is 5.25% to 5.50%, up from a range of 0% to 0.25% during the Covid-19 pandemic and a range of 1.50% to 1.75% before the health crisis. The federal funds rate impacts a variety of economic costs, including mortgage rates. “I often get told by outsiders, 'Hey, cut rates.' I had someone say that to me on an elevator this morning,” Powell joked.