Federal Reserve Chair Jerome Powell, speaking at a central bank forum in Sintra, Portugal, stated that while progress has been made in fighting inflation, more evidence is needed before considering interest rate reductions. The Fed has held interest rates steady at 5.25% to 5.5%, the highest level since 2001, and emphasized the necessity for "greater confidence" in inflation reduction before easing policy. Recent reports show a cooling of inflation, with the May personal consumption index indicating a decrease to 2.6%, and core prices climbing at the slowest annual rate since March 2021. Powell expressed satisfaction with the progress on inflation but emphasized the need for sustainable movement towards the 2% target before considering policy loosening. He also highlighted the substantial improvement in the labor market balance and the gradual cooling off of the job market. The Federal Reserve's preferred inflation measure, the Personal Consumption Expenditures index, rose 2.6% in May from a year earlier, down from 2.7% in April, and core prices also showed a decrease. Powell's comments come amid market anticipation of potential rate cuts, with most economists expecting the first cut to occur in September. Despite signs of easing inflation, the central bank is unlikely to cut rates at its next meeting in late July, as Powell emphasized the need for more evidence and time to ensure sustainable inflation reduction. The Fed's cautious approach is supported by a strong job market that is gradually cooling, allowing the central bank to be patient in its decision-making.
