US Fed chair Powell says ‘not far’ from cutting interest rates as inflation continues to decline

“I think we are in the right place,” Powell said of the current stance of monetary policy in a hearing before the Senate Banking Committee on Thursday, Reuters reported.

“We are waiting to become more confident that inflation is moving sustainably down to 2 percent. When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession,” he said.

The comment showed Powell’s faith that recent higher-than-expected inflation readings and other strong economic data won’t interrupt the ongoing decline in price pressures that took root last year.

The Fed chair has been reluctant to declare the inflation battle finished, and cautioned in testimony to the Senate panel, as he did on Wednesday before the House Financial Services Committee, that further progress back to the Fed’s 2 percent target was not assured.

The most recent data showed headline inflation, as measured by the Fed’s preferred Personal Consumption Expenditures price index, at 2.4 percent, with a related measure of underlying inflation at a slightly higher 2.8 percent.

But both have been “coming down sharply since the middle of last year”, Powell said.

“We’ve got a ways to go on that, but we’ve made a lot of progress,” he said.

Yields on 2-year Treasury notes fell slightly after Powell’s remarks, and investors firmed bets that an initial Fed rate cut would occur in June.

The central bank next meets on March 19-20, and will issue a new policy statement as well as updated rate and economic projections that should shed more light on policymakers’ expectations for the year.

But Powell’s update on monetary policy kept intact the sense that the central bank is nearing the point where the current policy rate of interest, held at a more than 20-year high since July in a range between 5.25 percent and 5.5 percent, will be lowered in the months ahead.