Rising confidence on inflation, solid labor market could put September rate cut on table: Fed chair

ISTANBUL

The US Federal Reserve Chair Jerome Powell said rising confidence on inflation and solid labor market could put September rate cut on table for the central bank.


"The question will be whether the totality of the data, the evolving outlook and the balance of risks are consistent with rising confidence on inflation and maintaining a solid labor market," Powell told a press conference after the conclusion of the Fed's two-day monetary policy meeting.


"If that test is met, the reduction in our policy rate could be on the table as soon as the next meeting in September," he added.

The Fed on Wednesday kept its federal funds rate unchanged in the 5.25%-5.5% target range, as widely expected, which is the highest level in 23 years.

"The second quarter inflation readings have added to our confidence and more good data would further strengthen that confidence," said Powell.


After soaring to 9.1% in June 2022, annual consumer inflation in the US significantly dropped to 3% in June 2023. Consumer prices annually rose 3% in June this year, also slowing from an increase of 3.3% that was recorded in May. It showed a decline of 0.1% in June, while it also managed to post a slowdown from May when it showed no change.

Powell said that the Federal Open Market Committee (FOMC) will continue to make its decisions meeting by meeting.

"We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation. At the same time, reducing policy restraint too late or too little, unduly weakened economic activity and employment," he explained.

"If we do get the (macroeconomic) data that we hope to get, then a reduction in our policy rate could be on the table at the September meeting," Powell said.

When asked if the Fed is considering a 50 basis points rate cut in September, instead of 25 basis points, Powell said it is not something the FOMC is thinking about right now, adding: "We have not made any decisions at all as of today."

"We've seen one quarter of good inflation, and we've seen the labor market move quite a bit," he added. "And as I mentioned, I don't think it needs to cool off anymore for us to get the inflation results that are related to the labor market."

The Fed chair said what the FOMC sees is strong economic activity, a good labor market, and inflation coming down.

Powell stressed that American economy is "completely different" at the moment, compared to a year ago.

"We've had this really significant decline in inflation and unemployment has remained low," he said, calling the current situation of the economy as "historically unusual" and a "welcome outcome" for the people.

The Fed chair said any rate cut in September would be unrelated to the presidential election in November, stressing the FOMC remains "absolutely" apolitical with monetary policy decisions.

"We never use our tools to support or oppose a political party, a politician or any political outcome. The bottom line is, if we do our very best to do our part, and we stick to our part, that will benefit all Americans. If we get it right, the economy will be stronger. We'll have price stability, people will find jobs, wages will rise. In real terms, everyone will benefit. So that's what we believe, and that's how we will always act," he explained.

Powell noted that this will be his fourth presidential election at the Fed.