Jerome Powell, the Chair of the Federal Reserve, declared on Monday that the central bank is prepared to lower interest rates before inflation hits the 2% mark. In his address at the Economic Club of Washington D.C., Powell stressed the importance of taking proactive measures due to the time lag involved in central bank policies.
Powell pointed out that waiting for inflation to reach 2% before acting could lead to an overly aggressive monetary policy tightening, which might push inflation below the desired level. Instead, the Fed aims to gather more conviction that inflation will rise to 2% before implementing rate cuts, supported by recent positive inflation data.
During his first public appearance following the cooling inflation reported in the June consumer price index, Powell dismissed concerns about a severe economic slowdown in the U.S. He clarified that he was not hinting at the exact timing of when the Fed might start reducing rates, as the central bank’s next policy meeting is scheduled for the end of July.
The discussion where Powell made these statements took place with David Rubenstein, the chairman of the Economic Club of Washington, D.C., and co-founder of The Carlyle Group. The current target range for the federal funds rate stands at 5.25% to 5.50%, a notable increase from the 0% to 0.25% range during the COVID-19 pandemic.
Powell also made light of the public’s frequent requests for rate cuts, recounting an amusing elevator encounter earlier that morning. The federal funds rate plays a significant role in the economy, affecting areas such as mortgage rates.
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