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Fed is ‘not far’ from confidence needed to cut rates, Powell says

Fed is ‘not far’ from confidence needed to cut rates, Powell says
The Marriner S. Eccles Federal Reserve building in Washington, DC. Photographer: Valerie Plesch/Bloomberg

Federal Reserve chair Jerome Powell suggested the central bank is getting close to the confidence it needs to start lowering interest rates.

“We’re waiting to become more confident that inflation is moving sustainably at 2%,” Powell said on Thursday while answering questions from the Senate Banking Committee. “When we do get that confidence — and we’re not far from it — it’ll be appropriate to begin to dial back the level of restriction.”

Powell’s remarks add some additional color about officials’ thinking around the timing of the first rate cut, bolstering the idea that such a move could come in the next few months.

Two-year Treasury yields fell following Powell’s comment, while traders boosted bets on a June rate cut.  

Powell repeated his testimony from Wednesday that it would likely be appropriate to cut interest rates “at some point this year” but made clear officials are not ready yet. Legislators need more evidence that inflation is heading sustainably to the central bank’s 2% goal before acting, he said.

After raising the benchmark federal funds rate more than five percentage points starting in March 2022, the Fed has held interest rates at a two-decade high since July. Against a backdrop of strong job growth and January jump in prices, officials have repeatedly emphasized they’re in no rush to lower borrowing costs from the current range of 5.25% to 5.5%. 

In December, the committee penciled in three interest rate cuts for this year, but Fed officials will update their forecasts at the March 19-20 meeting.

The Fed chief was on Capitol Hill for the second of two days of his semiannual monetary policy testimony. 

Read More: Powell Reiterates Fed Needs More Confidence on Inflation to Cut

Powell’s European counterpart Christine Lagarde offered more specific guidance on Thursday, indicating the European Central Bank may be in a position to lower rates in June. Fresh forecasts show inflation hitting the ECB’s 2% goal in 2025, but Lagarde said she and her colleagues aren’t “sufficiently confident” to start cutting yet.

“We clearly need more evidence, more detail,” the ECB president told reporters in Frankfurt, after legislators left the deposit rate unchanged at 4% for a fourth consecutive meeting. “We will know a little more in April, but we will know a lot more in June.”

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