Powell Still Sees Room for the Fed to Cut Rates This Year
A slowdown in wage growth has eased worries that the economy is too hot
Stronger-than-anticipated economic activity this year hasn’t materially changed the Federal Reserve’s expectation that declining inflation will allow for interest-rate cuts this year, Chair Jerome Powell said Wednesday.
Powell pointed to signs that labor market conditions are less tight than they have been in recent years, which has eased concerns that paychecks and prices might rise in tandem.
Meantime, signs of firmer-than-expected inflation in January and February haven’t yet shaken the Fed’s view that price growth will continue to slow down despite some bumps, Powell said in remarks prepared for delivery at a conference in Stanford, Calif.
“The recent data do not…materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down to 2% on a sometimes bumpy path,” he said.
Fed officials raised rates rapidly over the past two years to address a surge in inflation, which hit a 40-year high. They have held their benchmark short-term rate in a range between 5.25% and 5.5% since July.
Measures of underlying inflation have cooled notably since the middle of 2023. That has allowed the Fed to shift its attention away from whether to keep raising rates and toward when to lower rates from a level that some officials thought was necessary to defend against inflation becoming stubbornly elevated.
Most officials continued to see at least three cuts as appropriate this year in projections submitted at their most recent meeting last month.
Officials are trying to guard against the risk of easing too much or too soon, squandering recent gains in bringing down inflation. They also don’t want to leave rates at levels that unnecessarily slow the economy and cause a serious downturn.
“As progress on inflation continues and labor market tightness eases, these risks continue to move into better balance,” Powell said.
Investors in interest-rate futures markets currently place slightly higher than a 50% chance that the Fed will cut rates at its meeting in mid-June. Fed officials’ next meeting is April 30-May 1.