Federal Reserve Chair Jerome Powell expressed satisfaction with the progress on inflation, stating that it is showing signs of resuming a downward trend. He emphasized the need for more evidence of sustained downward movement before considering interest rate cuts. Powell's comments were made at a central banking forum in Portugal, where he also acknowledged the delicate balance the Fed needs to strike in deciding when to cut its benchmark interest rate, currently at 5.3%. The Commerce Department's personal consumption expenditures price index, the Fed's main inflation gauge, rose at a 2.6% 12-month pace in May, down from around 4% a year ago. Powell's cautious approach is influenced by the potential risks of moving too soon and threatening the downward path of price increases, or waiting too long and risking economic weakening. The market is closely monitoring the Fed's actions, especially as some central banks, like the European Central Bank, have started rolling back interest rates. Powell's remarks come amidst a record-breaking rally in the stock market, with the S&P 500 closing above 5,500 for the first time and the Nasdaq 100 hitting a record high. The dollar also slipped after Powell's comments, reflecting market sentiment. Overall, Powell's statements reflect a cautious approach to managing inflation and interest rates, balancing the need for sustained evidence of downward inflation with the potential risks of premature or delayed rate cuts.
