Federal Reserve Chair Jerome Powell hinted on Thursday that interest rate cuts could be on the horizon if inflation signals align favorably.
During his testimony to the Senate Banking Committee, Powell refrained from providing a specific timeline for potential easing but acknowledged that the prospect could materialize soon.
“We’re waiting to become more confident that inflation is moving sustainably at 2%. When we do gain that confidence, and we’re nearing it, it will be appropriate to start reducing the level of constraint,” Powell remarked in response to inquiries about rates and inflation. He emphasized that any cuts would aim to prevent the Fed from inadvertently triggering a recession, rather than merely adjusting policy as the economy returns to normalcy.
Powell’s statements come at a time of considerable volatility in financial markets regarding expectations of Fed policy.
At the outset of the year, futures traders anticipated the Fed would commence rate cuts in March and continue them, totaling six or seven reductions throughout the year. However, the current outlook suggests the first cut may occur in June, with four cuts expected by the end of 2024, amounting to a full percentage point reduction.
While recent inflation data indicates a continued deceleration in the pace of price increases, the consumer price index’s higher-than-anticipated reading for January caused some market turbulence. Nonetheless, Powell underscored in his congressional testimony this week that inflation is trending downward, though the Fed is not yet poised to implement cuts.
“I believe we’re maintaining an appropriate policy stance,” Powell remarked regarding the current position on policy.
