When might the Fed cut interest rates? Speculation is growing.
Speaking this morning at the Economic Club of Washington, Chair Jerome Powell said that the Federal Reserve is becoming more convinced that inflation is headed back to its 2% target and said the Fed would cut rates before the pace of price increases actually reached that point.
“We’ve had three better readings, and if you average them, that’s a pretty good pace,” Powell said. Those figures, he said, “do add to confidence” that inflation is slowing sustainably.
Powell declined to provide any hints of when the first rate cut would occur. But most economists and investors expect the central bank to begin cutting its key rate in September from its 23-year high, though a few now envision a rate cut as early as the Fed’s next meeting later this month. The futures markets expect additional rate cuts in November and December.
“Today,” Powell said, “I’m not going to send any signals on any particular meeting.”
Rate reductions by the Fed would, over time, reduce consumers’ borrowing costs for things like mortgages, auto loans, and credit cards.
Last week, the government reported that consumer prices declined slightly from May to June, bringing inflation down to a year-over-year rate of 3%, from 3.3% in May. So-called “core” prices, which exclude volatile energy and food costs and often provide a better read of where inflation is likely headed, climbed 3.3% from a year earlier, below 3.4% in May.
