The US central bank, led by Federal Reserve Chair Jerome Powell, has indicated it will not delay rate cuts until inflation reaches its two percent target. Powell informed lawmakers on Wednesday that the Fed has acknowledged the momentum of inflation, stating, "We've said that you don't want to wait until inflation gets all the way down to two percent, because inflation has a certain momentum." He cautioned that waiting too long could lead to inflation falling significantly below the target, which is also undesirable.
Powell's remarks were in response to a query about whether the Fed's favored inflation measure, the Personal Consumption Expenditures price index, would need to drop below two percent at least once in the coming months before officials consider rate reductions. His comments follow his observation the previous day that recent inflation data has shown "modest" progress, and that more positive data would enhance confidence in the sustainable cooling of price increases.
To address rising inflation, the Fed has raised the benchmark lending rate to its highest level in decades in an effort to curb demand. In recent months, policymakers have maintained rates at a 23-year high, despite inflation peaking and showing some stagnation in its decline. Powell told lawmakers on Wednesday that he is not yet ready to affirm that inflation is consistently declining towards two percent.
Regarding the Fed's political independence, Powell emphasized its importance for the central bank's effectiveness and for maintaining public trust across the political spectrum.
