JULY 22, 2024 – FED MAY ACT BEFORE INFLATION HITS THEIR 2% TARGET
Fed Chair Jerome Powell spoke to the Economic Club of Washington last week. He said the Fed works with “long and variable lags”, meaning they are looking for “greater confidence” inflation will return to 2 percent but do not need to wait until that happens to cut rates. Essentially, waiting for inflation to reach 2 percent to cut would be too late, because the current tightness in monetary policy will be working to control inflation going forward.
Powell said confidence is rising on the latest inflation data, and he was optimistic a “hard landing” for the US economy is unlikely. The released June CPI data, showing a 0.1 percent decrease month-over-month, seems to have been the driver behind Powell’s remarks. The annual inflation rate is at 3 percent, the lowest in three years.
The Fed next meets on July 30-31, when no action is expected. Following Powell’s address, markets increased the likelihood of a September rate cut of 0.25 percent to effectively 100 percent.