S&P 500, Nasdaq close at record highs as Powell hails progress on inflation

Federal Reserve Chairman Jerome Powell spoke publicly on Tuesday for the first time since the Fed’s preferred inflation gauge showed prices rose at their slowest pace in more than three years in May.

Although he still shows signs of caution, Powell acknowledged that the data has been trending in the right direction recently.

Jennifer Schoenberger of Yahoo Finance says in her report:

Powell said Tuesday he was encouraged by low inflation but stressed the central bank would need to see more evidence before cutting interest rates.

“The recent inflation readings in April and May suggest that we are back on a deflationary path,” Powell said at a symposium in Portugal for the European Central Bank conference.

Powell’s comments come days after the latest reading of the Fed’s preferred inflation target – the “core” personal consumption expenditures index – rose 2.6% in May, in line with expectations and down from 2.8% in April.

On a monthly basis, the inflation gauge rose 0.1%, also in line with expectations and down from 0.2% in April.

The reading provided fresh support for a rate cut later this year, easing concerns that had been building during the first quarter that hotter-than-expected inflation could upend plans to ease monetary policy in 2024.

Despite another positive sign of falling inflation, the central bank is unlikely to cut interest rates at its next meeting in late July.

Powell declined to answer a question about whether the Fed might cut interest rates in September.

Instead, he stressed that the Fed would need more time and evidence that inflation is moving sustainably toward its 2% target, suggesting the central bank could be patient given a strong labor market that is gradually slowing.

“We’ve made a lot of progress,” Powell said. “We just want to understand that the levels we’re seeing are a true reading of what’s really going on with core inflation.”