Powell hints at cutting rates before inflation reaches 2%.

Jerome Powell, the Federal Reserve Chair, stated on Monday that the central bank will not delay reducing interest rates until inflation reaches 2%.

In his speech at the Economic Club of Washington D.C., Powell explained why the Fed wouldn't wait for its target to be hit by stating that central bank policy works with "long and variable lags."

If inflation drops to 2%, it means you've waited too long to tighten monetary policy, as the level of tightness will still have effects that drive inflation below 2%, according to Powell.

Powell stated that the central bank is seeking "more certainty" that inflation will reach the 2% target.

More good inflation data has been increasing his confidence, as he recently stated.

Powell stated that he believes a "hard landing" for the U.S. economy is unlikely to occur.

Since the consumer price index report for June revealed cooling inflation, with prices decreasing month over month, Monday marked Powell's first public speaking appearance.

Powell stated at the beginning of his speech that he had no intention of sending any signals regarding when the Fed would begin reducing interest rates. The Fed's next policy meeting is scheduled for the end of July.

The federal funds rate range has increased from 0% to 0.25% during the Covid-19 pandemic to the current range of 5.25% to 5.50%. Prior to the health crisis, the range was 1.50%-1.75%.

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