In a surprising statement made during a speaking engagement at the Economic Club of Washington D.C. on July 15, Federal Reserve Chair Jerome Powell said that inflation would not necessarily have to hit 2% before interest rates are cut.
This statement constitutes a major shift from previous public comments made by the Fed emphasizing the specific goal of getting inflation to that 2% level, and would certainly be heartening to real estate agents and homebuyers and sellers, who would likely see mortgage rates move downward as well.
Powell explained that central bank policy utilizes “long and variable lags” that could hurry the rate-cut process. Such lags are why the Fed wouldn’t feel obligated to wait for its hoped-for target to be hit precisely.
“The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,” he said.
Powell pointed to the latest Consumer Price Index report showing that inflation has continued to get more in line for what the Fed wants, which is “greater confidence” that inflation will return to the 2% level. “What increases confidence in that is more good inflation data, and lately here we have been getting some of that,” he said.
Powell’s comments were made at a private function and it is unclear if he or the Fed will adjust their more official statements in regard to rate cuts, with the central bank’s next meeting scheduled for the end of July.
The views were expressed during an interview with David Rubenstein, chairman of the Economic Club, and co-founder of The Carlyle Group, where the Fed chair previously worked. Powell appeared less reserved in this environment compared to his press conferences following Fed meetings, noting that he has become recognizable in public.
“People I don’t know will always say, ‘Hey, cut rates.’ Somebody said that in the elevator this morning,” he joked. He also noted that he rarely eats in restaurants anymore because diners at other tables annoyingly try to listen in to his conversations hoping to learn what economic news may be forthcoming.
Powell is planning to serve out his full term, which ends in 2026.
To view the entire interview, click here.
