Powell says the Fed is “not far” from the point of cutting interest rates

“We are waiting to become more confident that inflation is moving sustainably at 2%. When we get this confidence, and we are not far from it, it will be appropriate to start reducing the level of restrictions.” Powell said in response to a question about interest rates and inflation. He said the cuts would be so that the Fed doesn't “push the economy into recession instead of normalizing policy as the economy returns to normal.”

Powell spoke at a time when financial markets have swung wildly in their expectations of Fed policy.

At the beginning of the year, futures traders were betting that the Fed would start in March and continue to cut interest rates six or seven times this year. Expectations now are that the first cut will come in June, with four cuts totaling a full percentage point by the end of 2024.

Inflation data recently indicated that the pace of price increases is continuing to slow, although the CPI shook markets when it came in higher than expected for January. However, Powell noted in his testimony to Congress this week that inflation is trending downward, though not yet at the point where the Fed is willing to reduce inflation.

“I think we're in the right place,” Powell said of the current policy stance.