Rate cuts likely, but inflation outlook remains uncertain: Federal Reserve Chair

Fed Chair's economic briefing: Federal Reserve Chair Jerome Powell addressed US lawmakers on Wednesday, stressing the central bank's focus on monitoring economic indicators closely amid a politically charged presidential election year. Powell indicated that while interest rate cuts remain a possibility in the near future, they would only be implemented if supported by evidence of declining inflation.

Fed's dual mandate

Powell stressed that the Fed's primary objectives are maximum employment and price stability, with decisions on rate cuts contingent upon the trajectory of the economy and incoming data. He reassured lawmakers that the Fed would maintain its focus on delivering its mandate despite external pressures.

Although Powell acknowledged uncertainty regarding inflation progress, he expressed confidence in the economy's resilience, highlighting a low unemployment rate and sustained growth. He emphasised the Fed's goal of achieving a stable economic environment.

The decision on rate cuts is nuanced, considering both signs of disinflation and unexpected economic strength. Powell acknowledged the complexities involved and underscored the importance of striking a balance to avoid unnecessary harm to the economy.

Election impact on policy

The upcoming presidential election adds a layer of significance to the Fed's deliberations, with its actions likely to influence public perception of economic management. Powell reiterated that further rate hikes are unlikely, signalling a cautious approach to monetary policy.

Despite differing economic indicators, Powell maintained optimism about the economy's trajectory, anticipating a soft landing with declining inflation and continued growth. He stressed the Fed's commitment to adjusting interest rates accordingly in the coming years.

The overall tone of Powell's testimony reflected a measured approach, balancing economic considerations with political dynamics and the Fed's mandate.

(With Reuters Inputs)