WASHINGTON — Authorities of the Federal Reserve will probably reduce their rates reference at the end of this year, its president said on Wednesday Jerome Powelldespite recent reports showing that the US economy remains strong and inflation picked up in January and February.
“Recent data do not substantially change the overall picture,” Powell said in a speech at Stanford University, “which continues to be one of solid growth, a strong but rebalancing labor market, and inflation that is heading downwards to 2% on a sometimes irregular path,” according to the president of the Fed.
Most Fed officials “see it as probably appropriate” to begin reducing the key rate “sometime this year,” he added.
In his speech, Powell also sought to dispel any notion that the Fed’s interest rate decisions could be affected by this year’s presidential election. The body will meet to decide whether to reduce rates during the peak of the presidential campaign, in July and September.
Inflation spike
Although inflation has dropped significantly from its peak, it is still above the Fed’s target of 2%. And average prices remain well above their pre-pandemic levels, which has caused discontent among many Americans and is a possible danger to President Joe Biden’s re-election.
The recent pick-up in inflation, although slight, has caused some economists to postpone their projections for when the Fed will begin cutting rates. The cuts would begin to reverse the 11 rate increases the central bank made starting in March 2022 to combat the worst inflationary streak in four decades. They are likely to lead to lower credit rates for households and businesses over time.
Now, many economists predict that the central bank’s first cut will not be until July or even later. This expectation has fueled some speculation on Wall Street that the Fed would ultimately decide to delay cuts until after the presidential election. The Fed meeting will be held on November 6 and 7, immediately after the election.
In his speech on Wednesday, Powell noted that Congress intended the Fed to be completely independent of politics, with officials serving long terms that did not coincide with elections.
“This independence,” Powell said, “allows and requires us to make our monetary policy decisions without considering short-term political issues.”
Source: With information from AP
