Fed Chair Jerome Powell Isn’t Ready to Claim Victory Over Inflation Yet

Inflation has cooled and the economy may be on the way to a “soft landing,” but Federal Reserve Chair Jerome Powell isn’t ready to signal a victory over inflation yet.

Powell acknowledged Monday that the most recent Consumer Price Index (CPI) report was the latest in a series of improving inflation readings that has boosted confidence among central bankers. Powell and his colleagues who set monetary policy have said they need confidence price pressures are easing before they move to cut their influential interest rate. 

“We’ve had now three better readings, and if you average them, that’s a pretty good pace,” Powell said during an interview at the Economic Club of Washington, D.C. “The three readings in the second quarter, including the one from last week, do add somewhat to confidence.”

Fed Working ‘Meeting-By-Meeting’ on Interest Rates

Powell wasn’t ready to forecast any change to the interest rate, which has been at a 23-year-high for the past 12 months. Fed officials are basing their interest-rate decisions on available economic data on a “meeting-by-meeting” basis, Powell said.

Investors expect the central bank to cut rates at its September meeting. However, while Powell didn’t forecast a timeline for rate cuts, he did make one prediction: Powell said a “soft-landing” scenario—where inflation drops without a spike in unemployment—seemed more possible.

“The hard landing scenario is certainly not the most likely, or a likely, scenario,” Powell said.

Powell attributed the labor market’s strength to how overheated it was before the Fed began its fight against inflation, allowing it it to cool without significant job losses so far.

Labor Market Nearing 2019 Levels, Powell Says

The Federal Reserve has been increasingly on alert in recent weeks as the number of job openings has stagnated and unemployment has risen. Significant jumps in unemployment could prompt the central bank to cut interest rates quicker than they would otherwise, fearing a rapidly cooling economy.,

However, Powell said the movement in the labor market is just a better balance between worker availability and job postings.

“It is essentially no tighter than in 2019, before the pandemic,” Powell said. “Remember that the labor market of 2019 was a very strong labor market.”