Credit: Envato Elements
Federal Reserve Chair Jerome Powell announced on Monday that the central bank will not wait until inflation reaches 2% before cutting interest rates. Speaking at the Economic Club of Washington D.C., Powell emphasized that central bank policy operates with “long and variable lags,” which necessitates preemptive action.
Powell explained that waiting for inflation to hit the 2% target could result in excessive tightening of monetary policy, potentially driving inflation below the desired level. Instead, the Fed seeks “greater confidence” that inflation will return to 2% before making rate cuts, bolstered by recent favorable inflation data.
In his first public appearance since the June consumer price index report showed cooling inflation, Powell dismissed the likelihood of a “hard landing” for the U.S. economy. He clarified that he did not intend to signal when the Fed might begin cutting rates, ahead of the central bank’s next policy meeting at the end of July.
Powell’s remarks came during a discussion with David Rubenstein, chairman of the Economic Club of Washington, D.C., and co-founder of The Carlyle Group. The target range for the federal funds rate is currently 5.25% to 5.50%, up from 0% to 0.25% during the COVID-19 pandemic.
The federal funds rate significantly influences the economy, including mortgage rates. Powell humorously noted the public’s frequent calls for rate cuts, recounting a comment made to him in an elevator earlier that morning.
