Washington, D.C. – Federal Reserve Chair Jerome Powell shared insights on Tuesday regarding the recent trend in inflation rates. The Fed’s preferred inflation gauge revealed the slowest increase in prices in over three years during the month of May.
While exhibiting a cautious tone, Powell acknowledged that there have been positive developments in the data recently. He expressed encouragement over the cooler inflation numbers but emphasized the need for more evidence before considering a cut in interest rates.
Speaking at a European Central Bank conference in Portugal, Powell highlighted the recent readings of the “core” Personal Consumption Expenditures (PCE) index. In May, the index rose by 2.6%, in line with expectations and down from April’s 2.8% increase.
The gradual easing in inflation figures has strengthened the case for potential rate cuts later in the year. This has eased concerns that emerged in the first quarter regarding unexpectedly high inflation derailing plans for monetary policy adjustments in 2024.
Despite the positive signs of inflation cooling down, the Federal Reserve is not expected to lower rates at its upcoming meeting in late July. Powell refrained from commenting on the possibility of a rate cut in September, emphasizing the importance of allowing more time and evidence to gauge whether inflation is trending towards the 2% target.
Highlighting the progress made in the economic landscape, Powell stressed the significance of obtaining a true understanding of the underlying factors influencing inflation levels. The central bank’s patience is underpinned by a strong job market that continues to show signs of gradual cooling.
In conclusion, Powell’s remarks underscore the importance of monitoring inflation trends closely and ensuring that any adjustments to interest rates are based on sustained evidence of the economy moving towards the desired target levels. The Fed remains vigilant amidst the evolving economic landscape, prioritizing a cautious approach to making any policy decisions.