Federal Reserve Officials Now See Balanced Risks in Fight Against Inflation
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The Fed is Weighing Economic Risks as It Considers When to Start Cutting Interest Rates
Justin Sullivan /Getty Images Federal Reserve Bank Chair Jerome Powell speaks during the Stanford Business, Government and Society Forum at Stanford University on April 03, 2024.
Key TakeawaysThe Federal Reserve is now attempting to avoid two risks—reignited inflation on one side and increased unemployment on the other.Chair Jerome Powell said Tuesday that a strong economy gives officials time to decide how to proceed. Other Fed officials said they are watching the labor market for signals on when to start moving interest rates.
The Federal Reserve is increasingly trying to balance the risks in the labor market with inflation, officials said this week. Now that high interest rates have helped bring inflation closer to the Federal Reserve's annual target rate of 2%, Chair Jerome Powell said central bankers would be able to focus on the timing of interest rate cuts. Interest rates are at a 23-year high.If the Fed cuts too soon, inflation could rebound—forcing the central bank to reverse course and hike rates again. If the Fed waits too long to cut, it could result in higher unemployment, Powell said at a conference in Portugal Tuesday.“We have to balance the two, and given the strength in the economy, we can approach that carefully,” Powell said.Daly, Goolsbee Also Looking to Strike BalancePowell isn’t the only Fed official talking about the balancing act. Chicago Federal Reserve Bank President Austan Goolsbee said the Federal Reserve should be ready to act on interest rate cuts if the job market weakens. “There’s a danger from waiting and there’s a danger from making wrong moves,” Goolsbee said in an interview with Bloomberg TV Tuesday.The comments come ahead of the release of the June payroll report on Friday, where officials will be closely watching to see if the labor market continues to outperform expectations. With the labor market remaining strong, San Francisco Fed President Mary Daly said last week that she and her colleagues have time to evaluate more incoming inflation data before moving to cut interest rates. However, there is a limit to how long they can wait, she said.“If you hold too long, that tightens the economy, then you have things like a faltering labor market and that is not good for people,” Daly said. Read the original article on Investopedia.
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