The US central bank will not want to wait for inflation to cool to its two percent target before considering a rate cut, Federal Reserve Chair Jerome Powell told lawmakers Wednesday.
“We’ve said that you don’t want to wait until inflation gets all the way down to two percent, because inflation has a certain momentum,” Powell said in testimony to the US House Financial Services Committee.
“If you waited that long, you’ve probably waited too long,” he added. In such a scenario, inflation would go well below the target level — which is also an undesirable outcome.
Powell was responding to a question on whether the Fed’s preferred inflation gauge, the Personal Consumption Expenditures price index, would need to dip below two percent at least once in the coming months before officials contemplate rate reductions.
The central bank leader’s comments come a day after he noted recent inflation readings have shown “modest” progress, adding that “more good data” would boost confidence that price increases are cooling sustainably.
To combat surging inflation, the Fed in recent years hiked the benchmark lending rate to a decades-high level in hopes of easing demand.
In recent months, policymakers have held rates at a 23-year high. While inflation has peaked, its downward progress has stalled somewhat.
On Wednesday, Powell told lawmakers that he is not yet prepared to express confidence that inflation is moving sustainably down to two percent.
Asked about the Fed’s political independence, Powell added that this is critical to the central bank’s ability to do its job and sustain the faith of people across the political spectrum.