Fed's Powell insists inflation does not yet support rate cuts

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Federal Reserve (Fed) Chairman, Jerome Powellreiterated on Wednesday that the US central bank needs to see «more good inflation reports» before starting to cut interest ratesalthough he has acknowledged that the current monetary policy of the organization «is restrictive«The neutral rate must have risen at least in the short term. The Fed's current policy is considered restrictive«He said this in the US Congress before the House Financial Services Committee. «I have some confidence that inflation is falling. I think we have seen that in recent years. The question is whether we are sufficiently confident that it is falling steadily to 2%. I still do not believe that inflation is falling.» I'm not ready to say it«he said. However, Powell has insisted that «It is not necessary» for inflation to be below 2% before lower rates and that the risks to achieving the dual mandate of employment and price stability «now look more balanced.» The central banker has also played down the idea that «greed,» or price gouging, has been a major factor in post-pandemic inflation. «We see it as this inflation being caused by a combination of very strong demand and limited supply«Powell said, citing the car supply problems as an example. During his appearance, and in response to representatives' questions about bank supervision, the Fed chief also said that they know they have «to adapt bank stress tests over time. The main thing is to get the bank capital proposal right.» It should be remembered that Powell presented the semi-annual monetary policy report to the Senate on Tuesday where he said that keeping rates high for too long could put the endanger economic growth. «Reducing policy restriction too late or too little could unduly weaken economic activity and employment«, he commented. He also noted that the organization needs «More good data» on inflation to be able to initiate interest rate cuts. «The Committee has stated that We do not expect it to be appropriate to reduce the target range. for the federal funds rate until we have gained greater confidence that inflation is moving sustainably towards 2%. Incoming data for the first quarter of this year did not support that increased confidence. However, the most recent inflation readings have shown some modest progress, and more good data would strengthen our confidence,» he noted. The market that the Fed begins to cut rates in September and is likely to follow up with another quarter-point reduction by the end of the year. However, FOMC members at their June meeting indicated only one cut.