BROAD DISINFLATION.
Rachel Siegel 7/31, economics reporter covering the Federal Reserve, BA in History at Yale University, “Fed keeps interest rates steady. But cuts aren’t far off.,” Washington Post, 7/31/2024, https://www.washingtonpost.com/business/2024/07/31/fed-rate-cuts-inflation/, JL
But Powell noted that the recent string of data is even “a little better than what we saw last year.” He described “a broader disinflation” in which prices are cooling across the board, most notably in housing, which makes up a major share of Americans’ budgets and took far longer to simmer down than expected.
“It’s a lot better,” Powell said. “Now, the job is not done. I want to stress that. And we’re committed to getting inflation sustainably down to 2 percent. But we need to take note of that progress.”
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The practiced and staid Fed chief generally holds back from forecasting too far into the future. But some Fed watchers are antsy for the first cut. They argue rates that stay too high for too long can backfire, causing cracks in the labor market if employers pull back or even lay people off. Those signs haven’t emerged yet. But officials have acknowledged that they have to balance their inflation goals with protecting the labor market more evenly than they have over the past few years.
“Go too soon, and you undermine progress on inflation,” Powell said. “Wait too long or don’t go fast enough, and you put at risk the recovery. And so we have to balance those two things. … It’s a rough balance.”
The last time officials convened, in June, they penciled in just one rate cut before the end of the year, down from three a few months before that. But Fed officials are taking their time because they’ve been thwarted by the economy’s unexpected turns before. Crucially, the Fed was slow to react when prices surged in the wake of the coronavirus pandemic — a mistake that forced the central bank to hoist borrowing costs in a rush to catch up.
Through it all, though, the Fed has managed a rare feat: bringing inflation down without causing a recession or blow to the job market. (The Fed’s preferred inflation gauge clocked in at 2.5 percent in June.) The economy grew at a surprisingly strong 2.8 percent in the second quarter, capping two years of solid expansion. The extreme labor shortages from the pandemic have also faded away, but employers are still hiring.