MNI: Powell: Fed Won't Cut Until More Confident On Inflation

The Federal Reserve is likely to begin cutting interest rates "at some point this year" but not until it becomes more confident that inflation will keep falling, Fed Chair Jerome Powell said Wednesday in opening remarks to his semiannual testimony to lawmakers.

"We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year," he is scheduled to tell the House Financial Services Committee at 10 a.m. ET.

A resilient U.S. economy, strong labor market and falling inflation has raised hopes of a soft landing, but Powell emphasized the outlook remains uncertain and "ongoing progress toward our 2% inflation objective is not assured."

"The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%," he said. (See: MNI INTERVIEW-Fed Could Cut Fewer Than 3 Times In '24-Friedman)

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As labor market tightness has eased and progress on inflation has continued, the risks to achieving the Fed's employment and inflation goals are moving into better balance, Powell said.

Monthly payroll gains averaged 239,000 jobs since mid-2023 and the 3.7% unemployment rate hovers near historic lows as supply and demand continue to come into balance, he said. Headline PCE inflation was 2.4% in the 12 months through January and core inflation was 2.8%, marking "considerable progress" over the past year.

Still, the Fed "remains highly attentive to inflation risks," Powell said.

"Reducing policy restraint too soon or too much could result in a reversal of progress we have seen in inflation and ultimately require even tighter policy to get inflation back to 2%. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment."

The Fed has held its benchmark interest rate in a range of 5.25% to 5.5% since July and the FOMC projected three cuts this year in its December Summary of Economic Projections. Futures traders have priced in a first 25bp cut by July.