Fed Chair Jerome Powell signals potential interest rate cuts. Here are the details

Federal Reserve Chair Jerome Powell hinted at the central bank’s growing confidence in considering interest rate cuts, stating they are “not far” from the needed assurance that inflation is sustainably moving towards the 2 per cent target, Bloomberg reported on Thursday.

Speaking before the Senate Banking Committee, Powell underlined that the timing of the rate cut remains dependent on the confidence in inflation trends.

His remarks contributed to the anticipation of a possible rate cut in the coming months, with traders adjusting their expectations following Powell’s commentary.

Powell highlighted that inflation’s sustainable movement towards the 2 per cent mark would be crucial before initiating any rate cut.

While stating that a rate cut might be appropriate “at some point this year,” Powell remains cautious.

The Federal Reserve had raised the benchmark federal funds rate significantly since March 2022 but has maintained it at a two-decade high since July.

Powell’s comments suggest a careful approach, with the central bank currently holding interest rates in the range of 5.25 per cent to 5.5 per cent.

In December, the Federal Reserve projected three interest rate cuts for 2024, and the committee is set to update its forecasts in the upcoming March meeting.

Following Powell’s statements, the market reacted with a decline in two-year Treasury yields, and traders adjusted their expectations, increasing bets on a rate cut in June.

The possibility of a rate cut comes amid strong job growth and a notable rise in prices in January.

Powell’s testimony over two days reflects a delicate balance between the need for economic stimulus and a cautious approach, considering the strong economic backdrop.

Christine Lagarde, Powell’s European counterpart, provided additional context, saying that the European Central Bank (ECB) may be positioned to lower rates in June.

Lagarde highlighted the need for more evidence and detail before considering rate cuts.

The ECB president said that it was important to gain confidence in the economic trends and added that more information would be available in June.

Lagarde’s comments come as the ECB keeps the deposit rate unchanged at 4 per cent for a fourth consecutive meeting.