America’s central bank is moving closer to cutting interest rates following three straight months of falling price pressures, its chairman has signalled.
Jerome Powell said policymakers had greater confidence that inflation was moving back to its 2pc target, adding that officials would not wait for price rises to return to that level before cutting borrowing costs.
While Mr Powell would not be drawn on the timing of rate cuts, he said the economy was now in “much better balance”.
Speaking at the Economic Club of Washington, Mr Powell said: “Our test for quite some time has been that we wanted to have greater confidence that inflation was moving sustainably down towards our 2pc target. And what increases that confidence in that, is more good inflation data. And lately, here we have been getting some of that.”
The Fed’s preferred measure of inflation eased back in June, and currently stands at 2.6pc.
Mr Powell said the last three inflation readings gave the Federal Open Market Committee that sets interest rates more confidence that the economy was cooling down, with signs that America’s jobs market “has indeed cooled off”.
The Fed is tasked with both controlling inflation and supporting maximum employment.
Mr Powell said that after a prolonged period of focusing on taming inflation by taking rates to a 23-year high of 5.25pc to 5.5pc, policymakers were now looking more at supporting the economy.
”We’re going to be looking at both mandates,” he said. “They’re in much better balance. And that means that if we were to see an unexpected weakening in the labour market, then that might also be a reason for a reaction by us.”
Mr Powell declined to comment when asked if the Fed was likely to cut rates by September, as investors are betting.
However, he said: “We’ve been very clear that you wouldn’t wait for inflation to get all the way down to 2pc [before cutting rates].”
Mr Powell also warned that “worrying” increases in US debt were “unsustainable” and would need to be tackled by either Donald Trump or Joe Biden following November’s election.
The independent Congressional Budget Office has warned that US borrowing was likely to remain close to 6pc of GDP for years to come.
Mr Powell said: “I am very worried, over time about the deficits that we’re running … The path we’re on where we’re running large deficits at a time of full employment and healthy growth is not a sustainable one over time, and we really need to get to work on that.
“I would hope this is a top line issue for elected people … I do talk to quite a few elected officials in Congress, and I think there is a rising sense that it’s time to do something about that.”
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