Fedneedsmore confidence on inflation to cut rates: Powell

Federal Reserve Chair Jerome Powell reiterated to lawmakers that the US central bank is in no rush to cut interest rates until policymakers are convinced they have won their battle over inflation.

In prepared testimony to a House panel Wednesday, the Fed chief said it will likely be appropriate to begin lower borrowing costs “at some point this year,” but made clear they’re not ready yet.

The remarks echoed a consistent message from nearly every Fed official in recent weeks: The economy and labor market are strong, meaning policymakers have time to wait for more evidence that inflation is headed back to their goal before cutting interest rates.

“The committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 per cent,” Powell said in brief prepared remarks to the House Financial Services Committee.

The Fed chief is on Capitol Hill for the first of two days of his semiannual monetary policy testimony, and is scheduled to appear before the Senate Banking Committee on Thursday.

Treasury yields remained mostly lower on the day after the remarks were released, and S&P 500 index futures held gains while the dollar was lower.

Fed officials are in the last rounds of an aggressive fight

IF THE ECONOMY EVOLVES BROADLY AS EXPECTED, IT WILL LIKELY BE APPROPRIATE TO BEGIN DIALING BACK POLICY RESTRAINT AT SOME POINT THIS YEAR”

JEROME POWELL

Federal Reserve Chair

to contain inflation.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. But the economic outlook is uncertain, and ongoing progress toward our 2 per cent inflation objective is not assured,” Powell said.

After raising their benchmark federal funds rate more than five percentage points starting in March 2022, they’ve held rates steady since July amid easing price pressures.

“We believe that our policy rate is likely at its peak for this tightening cycle,” Powell said in his prepared remarks, repeating language used at his last press conference on January 31.