Federal Reserve Chairman Jerome Powell said on Monday that the central bank will not wait until inflation reaches 2% before cutting interest rates.
Speaking at the Economic Club in Washington, D.C., Powell cited the idea that central bank policy has “long and variable lags” to explain why the Fed won’t wait for its goals to be achieved.
“What this means is that if you wait until inflation gets all the way down to 2%, you may have waited too long because the tightening measures you are taking, or the level of tightening, will still affect inflation,” Powell said. This could result in inflation falling below 2%.
Instead, Powell said, the central bank is seeking “greater confidence” that inflation will return to 2%.
“What adds to confidence in this is better inflation data, and we’ve had some of that recently,” he said.
Monday was Powell’s first public speech since June’s consumer price index report showed inflation had cooled, with prices actually falling month over month.
In his speech, Powell said he did not intend to send any signal on when the Fed might start cutting interest rates. The central bank’s next policy meeting will be held at the end of July.
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