Federal Reserve Chair Jerome Powell recently indicated that the central bank might consider lowering interest rates in the near future. Powell first announced this at the European Central Bank’s forum in Sintra, Portugal. This included a deep dive into the Fed’s dual mandate—keeping inflation in check and maximizing employment. With most major economic indicators suggesting some level of resiliency, analysts are waiting with bated breath for the next jobs report due out later this month.
The last change in interest rates was four meetings and six months ago. Powell confirmed that the majority of members of the Fed’s policy-making board support the concept of additional interest rate reductions. They’re counting on this occurring as the fiscal year wears on. “A majority of us do feel it will be appropriate in the remaining four settings of the year to begin reducing rates again,” he stated, reflecting the consensus among board members.
This upcoming meeting will be pivotal in deciding the Fed’s course of action. Last week, Powell reiterated that he was open to further rate cuts beginning this month if the economic data ahead warranted it. I would not take any meeting off the table or put any meeting on the table. It’s going to be data dependent,” he said, reinforcing the need for an adaptable approach to monetary policy.
News from this past week described signs of surprising resilience in the U.S. economy, with inflation near its lowest level since 2021. Prices did see some acceleration in May, leading to speculation that something more forceful than verbal intervention is needed with respect to interest rates. Economic forecasters predict the addition of some 110,000 new jobs in June alone. This data will help us understand more about whether this hiring slowdown persisted during this period. The next jobs report should be hugely influential in guiding the Fed’s decision-making.
Powell raised concerns about potential tariffs leading to “stagflation,” a scenario where inflation rises simultaneously with an economic slowdown. His comments follow on the heels of former President Donald Trump rolling back some of his most fierce tariffs on China in recent weeks. A large round of tariffs remains in legal limbo following two federal court rulings this past May. This new development serves as another dose of uncertainty for the economy.
While the Fed’s balancing act between all these factors is unprecedented, what hasn’t changed is the central bank’s emphasis on fulfilling its dual mandate. The strength of several major economic indicators point to an American economy that’s learning to live with COVID-19 and inflation. The downside risks from tariffs are high Powell said. Mitigating risks These risks have the potential to worsen future inflation and labor market outcomes.
