Jerome H. Powell, Chairman of the Federal Reserve, reiterated Wednesday that the central bank can take its time before cutting interest rates as inflation fades and economic growth maintains.
The central bank chief also used a planned speech at Stanford to emphasize the Fed’s independence from politics, a relevant message at a time when election season threatens to place Fed policy under scrutiny. spotlight.
This year is an important year for the Fed: after long months of rapid inflation, price increases are finally decreasing. That means central bankers may soon be able to lower interest rates from their highest levels in two decades. The Fed raised rates to 5.3% between March 2022 and mid-2023 to calm the economy and curb inflation.
However, it is difficult to determine when and to what extent to reduce interest rates. Inflation has slowed more slowly in recent months and the Fed doesn’t want to cut rates too soon and fail to fully control rising prices. Investors initially expected the Fed to cut rates at the start of the year, but are now seeing that first gesture coming in June or July as officials await further evidence that inflation has truly moderated.
“As for inflation, it is too early to say whether the recent numbers represent more than just an increase,” Mr. Powell said in prepared remarks for his speech. “We do not believe it will be appropriate to lower our policy rate until we are certain that inflation is falling sustainably towards 2 percent.”
“Given the strength of the economy and the progress made on inflation so far, we have time to let the incoming data guide our policy decisions,” he added. He called reducing inflation “a path sometimes fraught with pitfalls”.
But taking longer means the Fed’s first rate cut — and all subsequent ones — could come just as campaigning heats up ahead of the November presidential election.
Former President Donald J. Trump, the presumptive Republican nominee, has previously criticized the Fed for being political and said Mr. Powell was “going to do something to probably help the Democrats.” Mr. Trump initially elevated Mr. Powell to the role of Fed chairman, although he has since been reappointed to the role by President Biden.
The Fed is independent of the White House, and its officials often emphasize that they set policy based on economics, not politics. Mr. Powell did so on Wednesday, explaining that the Fed was immune to partisan bickering and was determined to ignore such pressures.
“Our decisions will always reflect our careful assessment of what is best for our economy in the medium and long term – and nothing else,” Mr Powell said.
But the Fed chairman also rebuffed calls for the Fed to do more on issues such as climate change, a demand that often comes from Democrats.
“We also need to avoid mission creep,” Mr. Powell said, citing climate change as something beyond the Fed’s scope. “Policies aimed at combating climate change are the business of elected officials and the agencies to which they have entrusted this responsibility. »
The Fed, he said, has “a narrow role that is related to our responsibilities as a banking supervisor,” but it is likely to come under pressure to expand that role and “we are not, and we will not “We are not trying to be decision-makers in matters of climate policy.” .”
