Federal Reserve Chairman Jay Powell said Tuesday he is hopeful about lower inflation but also stressed that the central bank needs to see more evidence before cutting rates.
The last two inflation numbers in April and May “indicate we are moving back onto a disinflationary path,” Powell said during a panel in Portugal for a European Central Bank conference.
Powell’s comments come days after the latest reading of the Fed’s desired inflation target — the “core” personal consumption expenditures (PCE) index — rose 2.6% in May, in line with expectations and down from 2.8% in April.
That was the slowest annual growth in more than three years.
On a monthly basis, inflation rose by 0.1%, also in line with expectations and down from 0.2% in April.
The reading provided fresh support for rate cuts later this year and eased concerns raised in the first quarter that higher-than-expected inflation could derail plans for monetary policy easing in 2024.
Despite another positive sign of declining inflation, the central bank is unlikely to cut rates at its next meeting in late July.
Powell declined to answer a question about whether the Fed could cut rates as early as September.
Instead, he stressed that the Fed needs more time and evidence that inflation is coming down sustainably toward its 2% target. He said the central bank can afford to be patient, given the strong labor market that is gradually cooling.
“We’ve made a lot of progress,” Powell said. “We just want to understand that the levels that we’re seeing are a true reflection of what’s actually happening with underlying inflation.”
The Fed raised its inflation forecast to 2.8% from 2.6% at its last policy meeting earlier this month and lowered its forecast to one rate cut this year, compared with three previous cuts.
Powell also declined to comment on Tuesday on the possible implications of Republican presidential candidate Donald Trump’s policies for monetary policy.
He stressed that the Fed would continue to try to stay out of politics. However, he noted that there is “very broad support” for an independent central bank from both political parties.
“I don’t think that’s really up for debate.”
When asked what the biggest risk to the U.S. economy is, Powell said he worries about a cyberattack on a major bank or major market player.
But he also said he thinks a lot about the right monetary policy.
“That’s what I really think about in the early hours.”
Click here for an in-depth analysis of the latest stock market news and events that impact stock prices
Read the latest financial and business news from Yahoo Finance
