Fed getting 'more good' inflation data leading to rate cut: Chair Powell

By Ovunc Kutlu

ISTANBUL (AA) - The US Federal Reserve is receiving "more good" inflation data, paving the way for its first interest rate cut later this year, Chair Jerome Powell said Monday.

Speaking at the Economic Club of Washington, DC, Powell reiterated his comments that the US central bank is looking for "greater confidence" that inflation is returning to its 2% target.

"Lately we have been getting some of that," he said in response to a question about what increases the Federal Open Market Committee's (FOMC) confidence.

Consumer price index (CPI), which measures changes in the prices of goods and services from a consumer's perspective, annually rose 3% in June, and came lower than market estimates of a 3.1% gain, while slowing down from a year-on-year increase of 3.3% recorded in May.

On a monthly basis, CPI showed a decline of 0.1% in June, and also came below the market expectation of a 0.1% increase, while it managed to post a slowdown from May when it showed no change.

Powell noted the Fed does not need to wait until inflation hits its 2% long-term target to begin lowering interest rates, because of the lagging effect of monetary tightening on inflation data.

"If you wait until inflation gets all the way down to 2%, you have probably waited too long, because the tightening that you’re doing is still having effects which will probably drive inflation below 2%," he explained.

Powell last week said reducing monetary policy restraint too soon or too much could stall or even reverse the progress on inflation, while reducing policy restraint too late or too little could weaken economic activity and employment, thus the FOMC is trying to find the right balance.

While the Fed is widely expected to hold the federal funds rate unchanged at the end of this month, the probability of a Fed rate cut of 25 basis points at the central bank's two-day meeting that will conclude on Sept. 18 increased to 91.4% on Monday, from around 84% last Thursday, according to the FedWatch Tool provided by the US-based Chicago Mercantile Exchange Group.