Powell says recent data raise confidence inflation on path to 2%

Federal Reserve Chair Jerome Powell said second quarter economic data has provided policymakers greater confidence that inflation is heading down to the central bank’s 2% goal, possibly paving the way for near-term interest rate cuts.

Powell pointed to the three latest inflation readings – including the one from last week – though made clear he didn’t intend to send any specific message about the timing of rate reductions.

“We didn’t gain any additional confidence in the first quarter but the three readings in the second quarter, including the one from last week, do add somewhat to confidence,” Powell said Monday during an interview with David Rubenstein at the Economic Club of Washington D.C.

The Fed chief cemented a shift in tone among central bank officials toward emphasizing potential risks to the labor market, alongside their continued focus on lowering inflation.

“Now that inflation has come down and the labor market has indeed cooled off, we’re going to be looking at both mandates,” Powell said. “They’re in much better balance.”

Powell added that “an unexpected weakening” in the labor market could also be a reason for the Fed to react.

While the U.S. economy is adding jobs at a solid pace and unemployment is low, the labor market has shown signs of cooling. The unemployment rate has risen gradually in recent months and is now at the highest level since 2021.

That trend, along with improving inflation data, has bolstered the case for the Fed to soon begin lowering its key policy rate. The Fed has held borrowing costs at the highest level in more than two decades for roughly a year.

The Federal Open Market Committee next meets July 30-31, a gathering where the Fed is expected to hold interest rates steady. Traders are betting on at least two cuts before the end of 2024, starting in September.

When asked about the potential market reaction to an assassination attempt against former President Donald Trump at a rally in Pennsylvania on Saturday, Powell condemned the violence and said he was grateful the injuries to Trump were not more serious. He declined to speak to the market impact.