The Fed’s Powell says prices are ‘back on the path to disinflation’, but more confidence is still needed

Federal Reserve Chairman Jerome Powell said on Tuesday that policymakers have made “enough” progress in fighting inflation, but he needs to see more evidence before he starts cutting interest rates.

Speaking during a central bank forum in Sintra, Portugal, Powell said inflation reports from April and May show price pressures are fading from the economy – and reiterated that the Fed wants that progress to continue.

“I think the latest reading, and the one before it to a lesser extent, suggests that we are moving back down a disinflationary path,” he said. “We want to be more certain that inflation is moving steadily to 2% before we start the process of easing policy.”

Officials voted at their most recent meeting in May to hold interest rates steady in a range of 5.25% to 5.5%, the highest level since 2001. Although policymakers left the door open to cutting rates later this year in their post-meeting statement, they also stressed the need for “greater confidence” that inflation is falling before easing policy.


Federal Reserve Chairman Jerome Powell answers a question during a meeting of the Economic Club of Washington at the Renaissance Hotel in Washington, DC (Amanda Andrade-Rhoades/File Photo/Reuters Photos)

Since then, there has been some evidence that inflation is beginning to moderate again. May’s personal consumption index showed inflation eased slightly to 2.6%, from a peak of 7.1%. At the same time, core prices — which are watched more closely by the Fed because they strip out volatile measures like food and energy — also rose 2.6%, the slowest annual rate since March 2021.

“This represents a really significant advance,” Powell said. “We’ve made a lot of progress. We just want to understand that the levels we’re seeing are a true reading of what’s going on with core inflation.”


US stocks were little changed after his comments ahead of a shortened holiday trading week.

TICKER Safety The last AmENdmENT change %
Me: DJI DOW JONES AVERAGES 39172.12 +2.60 +0.01%
I: COMP NASDAQ COMPONENT INDEX 17926.16694 +46.87 +0.26%
SP500 S&P 500 5480.78 +5.69 +0.10%

Both of these numbers remain above the Fed’s 2% target.

Policymakers raised interest rates sharply in 2022 and 2023 to the highest level since the 1980s in an effort to slow down the economy and cold inflation. Officials are now wrestling with when to take their foot off the brakes.

Powell said officials are trying to balance the risks between cutting interest rates too soon, which risks reinstating inflation, or waiting too long to cut rates, which could weigh on the economy and possibly trigger a recession.

“We’re aware that if we go too fast, we can undo the good work we’ve done to bring it down,” he said. “And if we go too late, we could unnecessarily damage the recovery and the expansion. And so we’re aware that we have two-sided risks, more so than a year ago.”

Federal Reserve Chairman Jerome Powell attends a press conference in Washington, DC, on May 1, 2024. (Liu Jie/Xinhua via / Getty Images)

Most investors now expect the Fed to start cutting rates in September or November and are expecting just two cuts this year — a dramatic shift from earlier in the year, when they predicted six interest rate cuts starting in March.


Higher interest rates tend to create higher rates on consumer and business loans, which then slow the economy by forcing employers to cut spending. Higher rates have helped push the average 30-year mortgage rate above 8% for the first time in decades. Borrowing costs for everything from home equity lines, car loans and credit cards have also risen.

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