Fed Chairman Jerome Powell Not Ready to Claim Victory on Inflation Yet

Key points to remember

Federal Reserve Chairman Jerome Powell said Monday that inflation continues to fall, but he stopped short of committing to cutting interest rates.
In comments to an audience in Washington, D.C., Powell said unemployment was unlikely to rise.
Powell compared the labor market’s performance to 2019, which he called “very strong.”

Inflation has slowed and the economy may be on track for a “soft landing,” but Federal Reserve Chairman Jerome Powell is not yet ready to signal a victory over inflation.

Powell acknowledged Monday that the latest consumer price index report was the latest in a series of improving inflation numbers that have bolstered central bankers’ confidence. Powell and his fellow policymakers have said they need to be confident that price pressures are easing before deciding to cut interest rates.

“We now have three best results, and if you average them out, that’s a pretty good pace,” Powell said in an interview at the Economic Club of Washington, D.C. “The three figures for the second quarter, including last week’s, provide some confidence.”

Fed works ‘meeting by meeting’ on interest rates

Powell declined to forecast a change in the interest rate, which has been at a 23-year high for the past 12 months. Fed officials base their interest rate decisions on available economic data, “meeting by meeting,” Powell said.

Investors expect the central bank to cut rates at its September policy meeting. However, while Powell did not provide a timeline for the rate cuts, he did make one prediction: Powell said a soft-landing scenario, where inflation falls without a spike in unemployment, seemed more likely.

“The hard landing scenario is certainly not the most likely, nor the most probable,” Powell said.

Powell attributed the strength of the labor market to the overheating it faced before the Fed began its fight against inflation, which has allowed it to cool down without significant job losses so far.

Job market nears 2019 levels, Powell says

The Federal Reserve has been increasingly on guard in recent weeks, with job openings stagnating and unemployment rising. A significant rise in unemployment could prompt the central bank to cut interest rates more quickly than it otherwise would, fearing a rapid slowdown in the economy.

However, Powell said the movement in the labor market is just a better balance between worker availability and job openings.

“The situation is no tighter than it was in 2019, before the pandemic,” Powell said. “You have to remember that the labor market in 2019 was very strong.”