The United States Federal Reserve still needs more data before cut interest ratesto make sure that recent weaker inflation readings give a true picture of what is happening with underlying price pressures, its chairman said on Tuesday, Jerome Powell.
May data showed the Fed’s preferred measure of inflation did not rise at all in the monthwhile the 12-month rate of price increases has slowed to 2.6%, still above the central bank’s 2% target but declining.
“We just want to understand that the levels we are seeing are a “real reading of what is really happening with core inflation”Powell said at a monetary policy conference in Portugal sponsored by the European Central Bank.
“We want to be more confident and, frankly, because the American economy is strong (…) we have the possibility to take our time.”
What Powell said about US economic data
Still, Powell acknowledged that the central bank has entered a delicate phase of its deliberations in which risks to the Fed’s inflation and employment goals “have moved much closer to equilibrium.”
In particular, some closely watched labor market measures suggest that the U.S. economy may be approaching a point where a further progress in inflation This will lead to an increase in unemployment, which the Fed has so far avoided.
“You can’t know for sure,” Powell said, “but you understand that we have two-sided risks.”
“Given the strength we see in the economy, we can approach this issue with caution,” Powell said, noting that Fed officials do not want to keep monetary policy too tight for too long and “miss the expansion.”
How the Fed’s path was with rates
The Fed maintained its reference interest rate stable in the 5.25%-5.5% range since last July, but policymakers are debating when to ease monetary policy as inflation moves back toward the central bank’s 2% target.
Inflation remains more than half a percentage point above that target, according to the Federal Reserve’s preferred personal consumption expenditures price index, and was described as “high” in the central bank’s June 12 monetary policy statement.
However, the most recent data on inflation and economic activity In general they suggest that the pressures on Prices may be easing furtherand investors expect an initial rate cut of a quarter of a percentage point at the Fed’s meeting on September 17-18.
The Fed’s decision will depend on upcoming reports on employment and inflation, such as the monthly employment report for June, which will be published on Friday, and the consumer price index for June, which will be published on July 11
Source: Ambito
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