Federal Reserve Chairman Jerome H. Powell reiterated Wednesday that the central bank can take its time before cutting interest rates as inflation eases and economic growth continues.
The central bank chief also used a speech he was scheduled to give at Stanford to emphasize the Fed’s independence from politics, a relevant message at a time when election season threatens to put Fed policy in an uncomfortable spotlight.
This year is a big one for the Fed: After long months of rapid inflation, price increases are finally easing. That means central bankers may soon cut interest rates from their highest level in two decades. The Fed raised interest rates to 5.3 percent between March 2022 and mid-2023 to cool the economy and curb inflation.
However, it is difficult to know when and how much interest rates should be reduced. Inflation has slowed in recent months, and the Fed doesn’t want to cut interest rates too soon and completely control price increases. Investors had originally expected the Fed to cut interest rates early this year, but are now anticipating a first move in June or July as officials wait for more evidence that inflation has truly eased.
“When it comes to inflation, it is too early to say whether recent readings represent more than just an increase,” Powell said in remarks prepared for delivery. “We do not believe it will be appropriate to cut our key interest rate until we have greater confidence that inflation is moving sustainably toward 2 percent.”
“Given the strength of the economy and the progress on inflation so far, we have time to let the incoming data guide our policy decisions,” he added. He called reducing inflation a “sometimes bumpy road.”
But giving it more time means the Fed’s first rate cut – and any subsequent ones – could come as the election campaign heats up ahead of November’s presidential election.
Former President Donald J. Trump, the presumptive Republican nominee, has already criticized the Fed as political and said Mr. Powell “will probably do something to help Democrats.” Mr. Trump initially appointed Mr. Powell as Fed chairman, although he has since been reappointed to that role by President Biden.
The Fed is independent of the White House, and its officials often emphasize that they set policy with the economy in mind, not politics. Mr. Powell did so on Wednesday, saying the Fed was insulated from partisan disputes and determined to ignore such pressures.
“Our decisions will always reflect our careful assessment of what is best for our economy over the medium and longer term – and nothing else,” Powell said.
But the Fed chairman also rejected calls for the Fed to do more on issues like climate change, a demand that often comes from Democrats.
“We also need to avoid ‘mission creep,'” Powell said, calling climate change something beyond the Fed’s control. “Policies to combat climate change are the responsibility of elected officials and the agencies that have appointed them to this responsibility.”
He said that the Fed “plays a narrow role that is related to our responsibilities as a bank regulator” but that it will likely come under pressure to expand that role and “we are not climate policymakers, nor do we want to be.” “
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2024-04-03 16:10:52
www.nytimes.com
