The chief of the Federal Reserve System, Jerome Powell, reported on Monday that the three key inflation indicators for the second quarter of 2024 increased some confidence in the return of price growth to the Fed's target level. His statements hinted at a possible decrease in interest rates in the near future.
Powell mentioned at an event at the Economic Club of Washington that some progress had been made in the second quarter in controlling inflation, having also noted that there were three positive indicators which, on average, provided a good result.
Powell emphasized that the easing of monetary policy would not begin until there was greater confidence in the steady return of inflation to 2%. According to him, they had been waiting for such indicators, and the second quarter's three indicators, including the latest report, really added confidence.
Last week, the Ministry of Labor reported that the Consumer Price Index dropped in June compared to the previous month, marking the first decrease in four years. Along with data on wholesale inflation, economists believe that the indicator the Fed uses for its inflation target will show a slowdown in annual price growth closer to 2%.
Powell is unlikely to attend a press conference after the Fed meeting on July 30-31. Members of the Board of Governors of the Federal Reserve System Christopher Waller and Adriana Kugler, along with other high-ranking officials, will also speak this week.
With inflation approaching the target level, policymakers are concerned about a potential slowdown in the economy and rising unemployment. Given a balanced set of risks, they might use their latest comments to either emphasize the inevitability of rate cuts or explain why the latest data does not yet justify policy easing.
Investors are eagerly anticipating a rate cut by the Fed in September. Changes in the political statement in July may confirm this, updating the inflation estimate and reinforcing confidence that the inflation spike is subsiding.
After a rapid increase in interest rates since 2022, the Fed has kept the base rate unchanged since July last year, within the range of 5.25%-5.50%. While Powell was speaking, financial markets almost ruled out the possibility of a rate cut in July. Traders expect a rate cut in September with further reductions in November and December, bringing the rate to 4.5%-4.75% by the end of the year.
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