Fed Chairman Powell: ‘Substantial progress in slowing US inflation

U.S. Federal Reserve chair Jerome Powell said, “The slowdown in U.S. inflation is making quite a bit of progress toward the target level.” Thanks to Chairman Powell's 'cautious optimism,' which did not rule out the possibility of an interest rate cut in September, the Standard & Poor's (S&P) 500 index exceeded the 5,500 level for the first time in history.

As a panelist, Chairman Powell attended a policy conference held in Portugal on Tuesday (local time). He evaluated that the Federal Reserve's efforts to lower inflation have progressed, stating that the United States has "entered the path of disinflation." The Fed's preferred price indicator, the 'Core Personal Consumption Expenditures (PCE) Price Index,' had a monthly increase of 0.08% in May, the lowest since November 2020, and a YOY increase of 2.6%, close to the Fed's target of 2%. This was evaluated positively.

However, regarding the timing of the interest rate cut, he reaffirmed his previous position, saying, “Before starting policy easing (interest rate reduction), we need to be confident that inflation is falling sustainably to 2%.”

Meanwhile, Austin Goolsbee, president of the Federal Reserve Bank of Chicago and a known advocate for easing monetary policy, warned of potential signs of economic weakening and suggested that the Federal Reserve should be cautious about overtightening its policies.

With interest rates likely to be frozen at the Federal Open Market Committee (FOMC) meeting on the 30th and 31st of this month, the market is engaged in a tug-of-war over whether the interest rate cut will occur in September or after the U.S. presidential election in November. In the June dot plot, 8 out of 19 Federal Reserve members indicated they would cut rates twice this year, seven members said they would cut rates once, and four members projected no cuts this year, reflecting a mixed outlook within the Federal Reserve.

On this day, Tesla's stock price rose by more than 10%, buoyed by Chairman Powell's inflation optimism and the relief that Tesla's second-quarter car deliveries had avoided the worst. As a result, the S&P 500 index increased by 0.62% compared to the previous day, setting a new record for the 32nd time this year. The Nasdaq index also rose 0.84%, achieving its 22nd all-time high this year.


Hyoun-Soo Kim kimhs@donga.com