Thursday, 18 April 2024

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Powell still sees rate cuts this year with inflation falling on a ‘bumpy’ path

Powell still sees rate cuts this year with inflation falling on a ‘bumpy’ path

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Federal Reserve officials will likely reduce their benchmark interest rate later this year, Chair Jerome Powell said Wednesday, despite recent reports showing that the U.S. economy is still strong and that U.S. inflation picked up in January and February.

“The recent data do not … materially change the overall picture,” Powell said in a speech at Stanford University, “which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2% on a sometimes bumpy path.”

Most Fed officials “see it as likely to be appropriate” to start cutting their key rate “at some point this year,” he added.

In his speech, Powell also sought to dispel any notion that the Fed’s interest-rate decisions might be affected by this year’s presidential election campaign. The Fed will meet and decide whether to cut rates during the peak of the campaign, in July and September.

Though inflation has cooled significantly from its peak, it remains above the Fed’s 2% target. And average prices are still well above their pre-pandemic levels — a source of discontent for many Americans and potentially a threat to President Joe Biden’s re-election bid.

The recent pickup in inflation, though slight, has led some economists to postpone their projections for when the Fed will begin cutting rates. Rate cuts would begin to reverse the 11 increases the Fed carried out beginning in March 2022, to fight the worst inflation bout in four decades. They would likely lead, over time, to lower borrowing rates for households and businesses.

Many economists now predict that the central bank’s first rate cut won’t come until July or even later. That expectation has fueled some speculation on Wall Street that the Fed might end up deciding to delay rate cuts until after the presidential election. The Fed’s November meeting will take place Nov. 6-7, immediately after Election Day.

Former President Donald Trump has called Powell “political” for considering rate cuts that Trump has said could benefit Biden and other Democrats. Powell was first nominated to be Fed chair by Trump, who has said that, if he is elected president, he will replace Powell when the Fed chair’s term ends in 2026.

In his speech Wednesday, Powell noted that Congress intended the Fed to be fully independent of politics, with officials serving long terms that don’t coincide with elections.

“This independence,” Powell said,…

Click Here to Read the Full Original Article at Fortune | FORTUNE…


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