Chair Jerome Powell reinforced his belief today that the Federal Reserve will cut its key interest rate this year but that it first wants to see more evidence that inflation is falling sustainably back to the Fed’s 2% target, according to the Associated Press.
Powell noted that inflation is slowing for both goods and services and did not express concern about the government’s latest inflation data, which showed some pickup in price increases in January. Instead, he said that, according to the Fed’s preferred gauge, inflation “has eased notably over the past year,” even though it remains above the Fed’s target.
Powell also suggested that the Fed faces two roughly equal risks: Cutting rates too soon — which could “result in a reversal of progress” in reducing inflation — or cutting them “too late or too little,” which could weaken the economy and hiring.
Overall inflation has steadily cooled, having measured at just 2.4% in January compared with a year earlier, according to the Fed’s preferred gauge, down from a peak of 7.1% in 2022. Recent economic data have complicated the picture, however, and clouded the outlook for rate cuts.
