Powell Says Inflation Must Fall Before Rates Are Cut

The US central bank still needs more data before cutting interest rates to ensure that recent weaker inflation readings give a true picture of what is happening to underlying price pressures, Federal Reserve Chair Jerome Powell said, Balazs Koranyi and Howard Schneider reported for Reuters.

Powell acknowledged the central bank has entered a sensitive phase in its policy deliberations where the risks to both the Fed's inflation and employment goals "have come back much closer to balance." I Photo: Board of Governors of the Federal Reserve System Facebook

Data for May showed the Fed's preferred measure of inflation did not increase at all that month, while the 12-month rate of price increases has ebbed to 2.6%, still above the central bank's 2% target but on the way down.

"We just want to understand that the levels that we're seeing are a true reading on what is actually happening with underlying inflation," Powell said at a monetary policy conference in Portugal sponsored by the European Central Bank.

"We want to be more confident, and frankly because the US economy is strong ... we have the ability to take our time."

Still, Powell acknowledged the central bank has entered a sensitive phase in its policy deliberations where the risks to both the Fed's inflation and employment goals "have come back much closer to balance."

In particular, some closely watched measures of the job market suggest the US economy may be approaching a point where further progress on inflation will involve the sort of tradeoffs with rising unemployment that the Fed has so far avoided.