Fed receives increasingly positive inflation data resulting in rate cut
Date
7/16/2024 3:37:30 AM
(MENAFN) The U.S. Federal Reserve is receiving increasingly positive inflation data, which could set the stage for its first interest rate cut later this year, according to Chair Jerome Powell's remarks on Monday. Speaking at the Economic Club of Washington, D.C., Powell emphasized that the central bank is looking for "greater confidence" that inflation is moving toward its 2 percent target. He noted that recent data has provided some reassurance in this regard.
For example, the Consumer Price Index (CPI), which tracks changes in the prices of goods and services from the consumer's perspective, showed an annual increase of 3 percent in June. This figure was below market expectations of a 3.1 percent rise and represented a slowdown from the 3.3 percent increase observed in May. On a monthly basis, the CPI decreased by 0.1 percent in June, falling short of the anticipated 0.1 percent gain and contrasting with May's stable figures.
Powell explained that the Fed does not need to wait for inflation to reach its 2 percent long-term target before considering interest rate reductions. He pointed out that the effects of monetary tightening can lag, meaning that waiting until inflation is fully under control could result in taking action too late. "If you wait until inflation gets all the way down to 2 percent, you have probably waited too long," he stated, as the ongoing tightening could push inflation even lower than the target.
Last week, Powell cautioned that reducing monetary policy restraint too soon or excessively could hinder progress on inflation, while delaying action might negatively impact economic activity and employment. The Federal Open Market Committee (FOMC) is thus focused on striking a careful balance.
As for the near-term outlook, while the Fed is widely expected to maintain the current federal funds rate at its upcoming meeting, the probability of a 25 basis points rate cut during the two-day session concluding on September 18 has increased significantly. According to the FedWatch Tool from the Chicago Mercantile Exchange Group, the likelihood of this cut rose to 91.4 percent on Monday, up from around 84 percent last Thursday, reflecting growing market anticipation of a shift in monetary policy.
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