Jerome Powell, the Federal Reserve’s leader, revealed on Monday a willingness to lower interest rates before meeting the 2% inflation milestone. At the Economic Club event in Washington D.C., Powell stressed the importance of taking proactive measures due to the time delay in central bank tactics.
Powell pointed out the peril of holding off until inflation reaches 2% before making a move, cautioning that such a delay might lead to an excessively forceful tightening of monetary policies and potentially push inflation below the targeted level. Instead, the Fed’s approach is to build greater confidence in the resurgence of inflation to 2% before starting rate reductions, supported by recent positive inflation data.
In his initial public appearance following the recent inflation drop as indicated in the June consumer price index, Powell dismissed worries about a substantial economic downturn in the United States. He clarified that he was not specifying a particular schedule for lowering rates, with the next policy meeting slated for late July.
Powell made these remarks during a conversation with David Rubenstein, the head of the Economic Club in Washington, D.C., and a founding member of The Carlyle Group. Currently, the established target level for the federal funds rate is 5.25% to 5.50%, a noticeable increase from the 0% to 0.25% range witnessed during the COVID-19 crisis.
Moreover, Powell amusingly recounted an incident earlier that same morning when he was playfully approached in an elevator regarding requests for rate cuts from the general public. The federal funds rate has a significant influence on various aspects of the economy, including its effects on mortgage rates.
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