July 15 (UPI) — The Federal Reserve won’t wait until inflation hits 2% annually to cut interest rates, Chair Jerome Powell said Monday at the Economic Club in Washington, D.C.
The annual inflation rate in the United States was 3% for the 12 months ending in June, down from 3.3% in May. It reached 8% in 2022, the highest since the early 1980s. Prices are 20.8% more expensive since the pandemic-induced recession began in February 2020.
“The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” Powell said.
The central bank’s next policy meeting is July 30 and 31.
“The U.S. economy has performed really remarkably well over the last couple of years,” Powell said.
The labor market is now no longer tighter than it was at the end of 2019, he said.
The federal funds target rate is now 5.25% to 5.50%, which is up from a range of 0% to 0.25% during the COVID-19 pandemic in 2020 and 1.50%-1.75% before that health crisis.
His comments were in line with what he told a U.S. Senate committee on Tuesday. While the inflation remains higher than its benchmark, the Fed realizes holding rates at their current levels too long could harm the economy. Some senators called on Powell and the board to lower rates sooner than later.
Powell said Monday the central bank policy works with “long and variable lags” and “what increases that confidence in that is more good inflation data, and lately here we have been getting some of that.”
A “hard landing” for the U.S. economy was not “a likely scenario,” he told the club participants.
This was Powell’s first public speaking appearance since the Labor Department’s consumer price index report for June issued Thursday showed prices declining 0.1% in June and 3% for the past 12 months.
The consumer price index tumbled by 3% in June after a 3.6% decline in May. The index for the core items, minus more volatile food and energy, increased by 0.1%.
Consumer prices are increasing at their slowest pace since June 2023 and matching the lowest annual rate since early 2021.
The federal funds rate impacts the cost of money, including mortgage rates.
“People I don’t know will always say, ‘hey, cut rates.’ Somebody said that in the elevator this morning,” Powell said jokingly.
Powell was part of a discussion with David Rubenstein, chairman of the Economic Club and co-founder of The Carlyle Group, where Powell previously worked.
Powell said he will serve at least through his term, which expires in May 2026.
He was appointed Fed chair in 2017 by President Donald Trump, after serving on the central bank’s board of governors. He was reappointed by President Joe Biden in 2021.