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Federal Reserve Chair Jerome Powell stated on Wednesday that the central bank would carefully assess inflation before considering any expected interest rate cuts.
Speaking at a business conference at Stanford University, Powell acknowledged progress in curbing price increases but noted a recent slowdown in these efforts.
He emphasized the need to determine whether the recent inflation readings were temporary or indicative of a broader trend.
Powell remarked, "Given the strong economy and our progress in managing inflation so far, we have the flexibility to base our policy decisions on incoming data."
Despite a significant decrease from its peak of 9.1%, inflation remains above the Fed's target rate of 2%.
At its last meeting, the Fed chose to maintain the current high rates, marking the fifth consecutive meeting without a rate change and signaling a pause in the aggressive rate hikes initiated in March 2022. The Fed aims to implement three interest rate cuts this year.
The central bank faces the risk of acting too early or too late in reducing rates, according to Powell.
He cautioned that premature or excessive rate cuts could reverse the progress made in controlling inflation, necessitating even stricter policies. Conversely, delaying or insufficiently lowering rates could weaken economic activity and employment.
While interest rate cuts could stimulate economic activity by reducing borrowing costs, Powell warned of the risk of a rebound in inflation if rates are reduced too quickly.
Despite a robust job market and a record-high S&P 500 index, some sectors, such as housing, have cooled significantly due to rising mortgage rates.
Powell referenced surveys indicating widespread expectations that inflation would return to normal levels.
He emphasized the importance of the Fed's actions and commitment to gradually reducing inflation to 2% over time, reinforcing public confidence in the economy's future stability.