Federal Reserve Chairman Jerome Powell said Monday that the central bank won’t wait until inflation hits 2% before cutting interest rates.
Speaking at the Economic Club of Washington, D.C., Powell mentioned the idea that central bank policy operates with “long and variable lags” to explain why the Fed won’t wait to achieve its goals.
“What that means is that if you wait until inflation gets down to 2 percent, you’ve probably waited too long, because the tightening, or the level of tightening, that we’re currently having is still having the effect of pushing inflation down below 2 percent,” Powell said.
Instead, the Fed wants “greater confidence” that inflation will return to the 2% level, Powell said.
“What would increase that confidence would be better inflation data, and we’ve been getting that recently,” he said.
Powell also said he believes a “hard landing” for the U.S. economy is “not a likely scenario.”
Monday marked Powell’s first public speech since the June Consumer Price Index report showed inflation slowing and prices actually fell month-over-month.
Powell began his speech by saying he wouldn’t offer any signal about when the Fed would start cutting interest rates, which are due to meet at the end of July.
Powell made the remarks as part of a discussion with David Rubenstein, president of the Washington Economic Club and co-founder of The Carlyle Group, where Powell previously worked.
The target range for the federal funds rate is currently 5.25% to 5.50%, up from 0% to 0.25% during the COVID-19 pandemic and 1.50% to 1.75% before the health crisis.
The federal funds rate directly and indirectly affects the cost of funds throughout the economy, including mortgage interest rates.
“People who don’t know always say, ‘Hey, lower interest rates.’ Someone said that to me in the elevator this morning,” Powell joked.