Fed Chair Powell Signals Potential for Rate Cuts Later This Year as Inflation Moderates

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Federal Reserve Chair Jerome Powell indicated on Tuesday that the central bank is anticipating a reduction in interest rates later this year, as inflation continues to moderate. During a House hearing, Powell stated that a majority of Fed officials believe it would be "appropriate to cut later this year."

Powell emphasized that the Fed's primary job remains "keeping inflation under control," while acknowledging that the economic outlook continues to evolve. He noted that lower inflation readings and a weaker labor market "could mean an earlier cut."

When asked about potential tariffs, Powell declined to comment directly, saying it would be "inappropriate for the Fed to comment on tariffs." However, he acknowledged that "inflation is projected to have moved up due to tariffs," though he added that "don't know how much costs will be passed to consumers."

Powell explained that the Fed hasn't moved rates to neutral levels because of "forecasts for inflation," stating that the central bank "can't ignore forecasts for higher inflation." Regarding the labor market, Powell said, "we don't see weakness in the labor market," recalling that "labor market concerns drove a half-point cut last year."

On other topics, Powell mentioned it's "too early to know the economic impact of Mideast tensions" and confirmed that "banks are free to provide services to the crypto industry." He also addressed housing issues, stating that "Fed policy won't be the driver of longer-run housing supply" and that the central bank "can't affect the longer-run housing shortage in the U.S."

The Fed Chair pointed out that the Atlanta Fed's GDP model doesn't suggest a recession is imminent. He also mentioned that rental inflation "is now coming down quite regularly."

Powell's comments come as the Federal Reserve continues to monitor the economy closely and adjust its monetary policy accordingly. Investors will be closely watching future statements from Powell and the Fed for any further indications of potential rate cuts.