Powell Says Fed Will Cut Rates When Ready

• Federal Reserve Chair Jerome Powell said on Wednesday the U.S. central bank will make interest rate decisions "when and as" they are needed, pushing back on a suggestion that a September rate cut could be seen as a political act ahead of the fall presidential election.
• The state of the economy, and particularly the surge in housing, food and other costs in recent years, has been a potent issue for Republicans given public sentiment that remains sour given the high price of many items even as inflation itself has slowed. Rate cuts initially expected early this year were pushed back after inflation proved stickier than expected, with the Fed's monetary policy debate now lined up squarely with the fall campaign.
• Republicans focused on the conditions that would warrant lower rates and encouraged Powell to not move until inflation was beaten; Democrats tried to draw him out on issues like proposals by a Republican-aligned group, called Project 2025, to overhaul and potentially weaken the Fed, and cited their concerns about rising unemployment.
• Powell, over his two days of commentary before the Senate and House committees that oversee the central bank, indicated the Fed was edging closer to a rate cut decision, while also insisting that he was not yet ready to declare that inflation had been beaten. Powell and other Fed officials have said they will not cut interest rates until they have gained even greater confidence that inflation is headed back to the central bank's 2% target after a breakout surge during the pandemic.
• After hitting a 40-year high in 2022 the Fed's preferred measure of inflation, the Personal Consumption Expenditures Price Index, was 2.6% as of May. Powell reiterated the central bank will need to cut rates before the figure returns fully to 2%, but after the underlying momentum seems likely to take it there.
• The Fed next meets on July 30-31. While officials are expected to maintain the benchmark interest rate at the comparatively high 5.25% to 5.5% range approved in July of 2023, further progress on inflation could lead to key changes in their policy statement that pave the way for a September cut.

(Source: Reuters)