AA / Istanbul / Ovunc Kutlu
U.S. Federal Reserve Chairman Jerome Powell said Tuesday that U.S. inflation was showing signs of a return to the disinflationary trend, but the Fed needed more confidence to begin easing monetary policy.
Powell said the U.S. economy grew solidly in the first half of the year, with the labor market remaining strong and inflation, after pausing in the first quarter, now showing signs of resuming the disinflationary trend.
“We have made many efforts to bring inflation back to our target, while the labour market has remained strong and growth has continued. We want this process to continue,” he said at the European Central Bank (ECB) forum on Central Banking 2024 issues, held in the Portuguese city of Sintra.
Powell noted that the last two inflation data showed the Fed was returning to a disinflationary path, and added: “We want to be more confident that inflation is down to 2% before we begin our easing policy.”
Responding to a question about the level of confidence needed to begin easing monetary policy, Powell said: “Because the U.S. economy and the labor market are strong, we have the ability to take our time and get this right.”
The Fed chairman did not provide an answer, however, as to whether the Fed would begin cutting its benchmark interest rate in September.
“If we go too early, we can undo the good work we’ve done to reduce inflation, and if we go too late, we can unnecessarily undermine the (economic) recovery and growth,” he said.
ECB President Christine Lagarde said the central bank was “very advanced” on the path to disinflation and that it saw a slow economic recovery.
“We still think it’s going to be a bumpy road until the end of 2024, but we still have a target (of 2% inflation) for the second half of 2025,” she said. “Services (inflation) hasn’t moved… Obviously, we’re very attentive to the components and what’s beyond services.”
“This is due to constant changes, but also to a lag effect of other components that are being integrated more slowly and progressively into services,” she added. “We do have the services figure that has increased slightly in recent months, and is now holding at 4.1%.”
Lagarde said the ECB did not need services inflation below 2% and noted that manufacturing inflation was below 2%.
“Ultimately there will be a balance between goods and services, and the weight of those in the index. But we really need to look at what is behind that,” listing several elements such as real wages, wage renegotiation in the EU, falling profits and rising wage costs.
* Translated from English by Mounir Bennour.
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