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Powell repeats that there is time for the Fed to decide on interest rate cuts

Federal Reserve Chair Jerome Powell reiterated Wednesday that the U.S. central bank has time to deliberate on its first interest rate cut given the strength of the economy and recent high inflation data.

“Recent data on job growth and inflation have been higher than expected,” Powell said in a speech prepared to be delivered at the Stanford Graduate School of Business.

“However, recent data does not substantially change the overall picture, which continues to be characterized by solid growth, a strong but rebalancing labor market and inflation approaching 2% on a sometimes bumpy path.”

“Given the strength of the economy and the path of inflation to date, we have time to let the upcoming data guide our monetary policy decisions,” Powell said, with decisions taken on a “meeting-by-meeting” basis.

“If the economy generally evolves as we expect,” Powell said, he and his Fed colleagues agree that a lower interest rate will be appropriate “at some point this year.”

But that will only happen when policymakers “have more confidence that inflation is moving sustainably” toward the central bank’s 2% target, Powell said, also repeating language the Fed has recently adopted to reflect its effort to balance the risks of reducing interest rates ahead of inflation. is truly under control with the risk of suppressing economic activity more than necessary.

Inflation, based on the Fed’s preferred measure, remains half a percentage point or more above the central bank’s target, and recent progress has been minimal. This has led some authorities to ignore the need to reduce interest rates until the end of this year.

Investors still expect an initial interest rate cut at the Fed’s June 11-12 meeting, although the chances of that happening have diminished due to stronger data. The US jobs report for March will be released on Friday, while new inflation data will be released next week.

At its meeting last month, the Fed kept its benchmark interest rate in the range of 5.25% to 5.50%, the level it has been at since July.

Powell also used his speech on Wednesday to offer an election-year reaffirmation of a politics-free approach to monetary policy – ​​a stance he said is critical to getting the outcome right.

The Fed has independence in setting interest rates and other important decisions, but this “requires us to make our monetary policy decisions without regard to short-term political issues… History shows that independent central banks deliver results better economic ones,” he said. .

“We do this by doing our work with technical competence and objectivity, in a transparent and accountable manner, and by staying true to our work,” Powell added, an approach that also means the Fed must avoid “mission creep” and not get involved in tax issues or issues such as climate change.

Source: Terra

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