KEY TAKEWAYS

• Federal Reserve Chair Jerome Powell told a European banking conference the U.S. has made ‘significant progress’ on inflation.
• However, he said he wanted more data before moving to cut interest rates. Powell didn’t offer a timeline for interest rate cuts. 
• While inflation is likely to continue to trend lower, it likely won’t reach the Fed’s target until late 2025, he said.

Chair Jerome Powell said Tuesday the Federal Reserve has made “significant progress” in bringing inflation down.

The head of the U.S. central bank made the remark during a roundtable discussion at a European Central Bank conference in Portugal alongside his counterparts from other countries. 

Since hitting its peak in June 2022, the Personal Consumption Expenditures (PCE) price index has fallen steadily. The Fed’s preferred measure of inflation did see some bumps in the road during the first quarter of this year. But it has since continued its trend of what Powell on Tuesday called “really significant progress” toward the central bank’s target of 2% inflation.

“The last reading and the one before it to a lesser extent, do suggest that we are getting back on a disinflationary path,” Powell said. “We want to be more confident that inflation is moving sustainably down toward 2% before we start the process of reducing how tight our policy is.”

How Much More Progress Is Powell Looking For?

The Federal Reserve has pushed its influential fed funds rate to its highest level in more than two decades and has held it there for nearly a year. Fed officials hope the high interest rates will discourage spending by making borrowing for businesses and consumers more expensive.

The fight against inflation is impacting multiple corners of the economy.

The labor market, which was once running too hot for the Fed’s comfort, now looks to be in good balance, Powell said. Meanwhile, the effects of the central bank’s fight against inflation are most visible in the housing market, as buyers and sellers are both discouraged by high interest rates.

Powell forecast lower inflation over the rest of the year but said he does not expect it to approach the 2% target until later in 2025. During the panel discussion, Powell was asked about his projections for the inflation rate one year from now.

“Sustainable, durable underlying inflation between 2 and 2.5%, that would be a great outcome,” Powell said.