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Fed Chair Awaits More Inflation Cooling as Path Proves ‘Bumpy’

Jerome H. Powell, the chair of the Federal Reserve, reiterated on Wednesday that the central bank can take its time before cutting interest rates as inflation fades and economic growth holds up.

The central bank chief also used a speech set for delivery at Stanford to emphasize the Fed’s independence from politics, a relevant message at a time when election season threatens to pull Fed policy into an uncomfortable limelight.

This year is a big one for the Fed: After long months of rapid inflation, price increases are finally coming down. That means that central bankers might soon be able to lower interest rates from their highest levels in two decades. The Fed raised rates to 5.3 percent between March 2022 and mid-2023 to cool the economy and bring inflation to heel.

Figuring out when and how much to cut interest rates is tricky, though. Inflation has decelerated more slowly in recent months, and the Fed does not want to cut rates too early and fail to fully wrestle price increases under control. Investors had initially expected the Fed to lower rates early this year, but now see the first move coming in June or July as officials wait for more evidence that inflation has truly moderated.

“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Mr. Powell said in remarks prepared for delivery. “We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent.”

“Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” he added. He called reducing inflation a “sometimes bumpy path.”

But taking extra time means that the Fed’s first rate cut — and any subsequent ones — could come just as campaigning is heating up ahead of the presidential election in November.

Former President Donald J. Trump, the presumptive Republican nominee, has already criticized the Fed for being political and said that Mr. Powell was “going to do something to probably help the Democrats.” Mr. Trump first elevated Mr. Powell to the role of Fed chair, though he has since been reappointed to the role by President Biden.

The Fed is independent of the White House, and its officials often stress that they set policy with an eye on the economy, not politics. Mr. Powell did so on Wednesday, explaining that the Fed is insulated from partisan wrangling and is determined to ignore such pressures.

“Our decisions will always reflect our painstaking assessment of what is best for our economy in the medium and longer term — and nothing else,” Mr. Powell said.

But the Fed chair also pushed back on calls for the Fed to do more on issues like climate change, a request that often comes from Democrats.

“We also need to avoid ‘mission creep,’” Mr. Powell said, citing climate change as something beyond the scope of the Fed. “Policies to address climate change are the business of elected officials and those agencies that they have charged with this responsibility.”

The Fed, he said, has “a narrow role that relates to our responsibilities as a bank supervisor,” but that it is likely to come under pressure to expand that role and “we are not, nor do we seek to be, climate policymakers.”

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