U.S. Federal Reserve Chair Jerome Powell said on Wednesday that the central bank will decide on interest rates “when and as they need to be made” with no consideration to the coming presidential election. With his statement, Powell pushed back on a suggestion that a September interest rate cut could be a political act ahead of the presidential elections.
Powell reiterated the Fed’s stance on monetary policy, adding that the central bank’s role is to make decisions at the right time according to incoming data, the economic outlook, and the balance of risks, adding that it does not include any other factors in its decision, including political factors.
The Fed Chair added that the central bank has previously taken monetary policy decisions, including during election years, adding that election cycles do not impact those decisions.
Rate cut trajectory
During his two-day testimony before the Senate and House committees that oversee the central bank, Powell signaled that the Federal Reserve was coming closer to an interest rate cut decision. However, he insisted that he was not yet ready to declare that inflation was under control.
“We continue to make decisions meeting by meeting. We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation. Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” he added.
Powell and other Fed officials said that they will not cut interest rates until they have gained even greater confidence that inflation is on track back to the central bank’s 2 percent target.
“The risks to achieving our employment and inflation goals are coming into better balance,” Powell stated.
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U.S. inflation data
After hitting a 40-year high in 2022, the Personal Consumption Expenditures Price Index reached 2.6 percent as of May. Powell stated the Fed will need to cut interest rates before the figure returns to the 2 percent target.
Markets await the next inflation report, due on Thursday, for better insight into the next rate cut. In addition, Powell will share more public remarks on Monday at the Economic Club of Washington.
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