Fed won’t wait for 2% inflation to consider rate cut, Powell says

WASHINGTON, DC – JULY 10: Federal Reserve Chairman Jerome Powell speaks during a House Financial Services Committee hearing on the Federal Reserve’s semiannual report on monetary policy at the U.S. Capitol on July 10, 2024 in Washington, DC. Powell spoke about reducing inflation rates, saying “the level of U.S. debt is not inherently unsustainable, but the path we’re on is unsustainable.” (Photo by Bonnie Cash/GETTY IMAGES NORTH AMERICA/Getty Images via AFP)

Washington, United States — The U.S. central bank will not want to wait for inflation to fall back to its 2% target before considering a rate cut, Federal Reserve Chairman Jerome Powell told lawmakers on Wednesday.

“We’ve said we shouldn’t wait for inflation to come back down to 2 percent because inflation has some momentum,” Powell said in testimony before the U.S. House Financial Services Committee.

“If you’ve waited this long, you’ve probably waited too long,” he added. In such a scenario, inflation would be well below the target level, which is also an undesirable outcome.

READ: Fed’s Powell underscores message that U.S. labor market is cooling

Powell was responding to a question about whether the Fed’s preferred inflation gauge, the personal consumption expenditures price index, would need to fall below 2 percent at least once in the coming months before officials consider rate cuts.

The central bank chairman’s comments come a day after he noted that recent inflation figures showed “modest” progress, adding that “more good data” would boost confidence that price increases are slowing sustainably.

To combat rising inflation, the Fed has in recent years raised the benchmark lending rate to levels not seen in decades, hoping to reduce demand.

READ: Fed’s Powell says US making ‘modest’ progress on inflation

In recent months, policymakers have held rates at their highest level in 23 years. While inflation has peaked, its decline has slowed somewhat.

On Wednesday, Powell told lawmakers he was not yet ready to express confidence that inflation will decline sustainably to 2%.

Asked about the Fed’s political independence, Powell added that it was critical to the central bank’s ability to do its job and maintain the confidence of people across the political spectrum.