Federal Reserve heading for rate cuts this year as inflation slows and the economy remains healthy – Chicago Tribune

The Federal Reserve is on track to cut interest rates three times this year, with that move expected to begin in early May, Chairman Jerome Powell said in an interview broadcast Sunday night.

Powell also said in an interview recorded Thursday for CBS’ “60 Minutes” news program that the nation’s job market and economy are strong and there are no signs of a recession on the horizon.

“I think the economy is in a good place, and there’s every reason to think it could be better.”

Powell’s comments largely echoed those he made at a news conference Wednesday after the Fed decided to keep interest rates steady at 5.4%, the highest level in 22 years. To fight inflation, the Fed increased its benchmark interest rate 11 times starting in March 2022, causing loans to consumers and businesses to become much more expensive.

The Fed chairman also reiterated that the central bank’s next meeting in March is likely too early for a rate cut. Most economists think the first outage will likely occur in May or June.

With inflation steadily falling, nearly all 19 members of the Fed’s policy-setting committee agree that cuts in the central bank’s interest rate would be appropriate this year, Powell said in the “60 Minutes” interview. A decrease in this rate would help reduce the cost of mortgages, auto loans, credit cards, and other consumer and commercial borrowings.

In December, Fed officials stated that they predicted three interest rate cuts in 2024 and reduced the benchmark interest rate to approximately 4.6% by the end of the year. Powell told “60 Minutes” that estimate likely still reflects the views of policymakers.

Inflation, by the Fed’s preferred measure, fell to just 2.6% in December compared with 12 months earlier. And inflation in the second half of 2023 measured at just 2% annually, in line with the Fed’s target level, down substantially from a peak of 7.1% in summer 2022.

Powell attributed the inflation spike in 2021-2022 to disruptions in the pandemic, including shifting spending from services like restaurant meals to goods like home office furniture and exercise bikes. At the same time, COVID has closed or slowed down factories around the world, severely disrupting supply chains and causing widespread shortages of goods and components. Both trends are accelerating inflation, Powell said.

At the same time, Powell acknowledged in the interview that the Fed had misjudged the duration of the resulting inflation, repeatedly suggesting it would be short-lived. Powell, as he has done before, said the central bank was moving too slowly to raise interest rates, which could help slow borrowing and spending. Inflation started rising in mid-2021, but the Fed didn’t start raising rates until March 2022.

“Looking back, I think it would have been better to tighten policy sooner,” Powell said, referring to interest rate hikes. “I’m happy to say that. … We thought the economy was very dynamic and would correct itself pretty quickly. We thought inflation would go away pretty quickly without our intervention.”

At a press conference on Wednesday, Powell signaled that the Fed may cut interest rates this year, but underlined that central bank officials want to see more evidence that inflation is under control.

“We’re not looking for better data; we’re just looking for continuation of the good data we’ve had,” he said. “We need to see more.”

Also Wednesday, Powell repeatedly acknowledged the strength of the U.S. economy and noted that inflation is slowing without the sharp rise in unemployment and weak growth that many economists say are needed to cool consumer demand and slow price increases.

“We have six months of good inflation data and the expectation that there will be more to come,” Powell said Wednesday. “So it’s a good situation. Let’s be honest. It’s a good economy.”

Other Fed officials have expressed caution about the possibility of a rate cut, especially after a government report released Friday showed job growth unexpectedly picked up in December; This is a sign that businesses are confident enough to add large numbers of workers to the economy.

Fed Board member Michelle Bowman said Friday that a rate cut will eventually become appropriate once it becomes clear that inflation is under control.

“In my view,” he said, “we’re not there yet.”