U.S. central bank still need more data before cutting interest rates to ensure that recent weaker inflation readings give a true picture of what is happening to underlying price pressures, Federal Reserve Chairman Jerome Powell said on Tuesday.
Data for May showed the Fed's preferred measure of inflation did not rise at all in the month, while the 12-month rate of inflation had slipped to 2.6%, still above the central bank's 2% target but on the decline.
"We just want to understand that the level we're seeing is a true reading of what's actually happening with underlying inflation," Powell said at a monetary policy conference in Portugal sponsored by the European Central Bank.
Nevertheless, Powell acknowledged that the central bank has entered a sensitive phase in its policy discussions where risks to the Fed's inflation and employment goals "have come back into balance."
In particular, several closely watched measures of the labor market show the U.S. economy may be approaching the point where further progress against inflation will involve the kind of trade-off with rising unemployment that the Fed has so far avoided.
The Fed has kept its benchmark policy interest rate in the 5.25%-5.5% range since last July, but policymakers are debating when to ease monetary policy as inflation moves closer to the central bank's 2% target.
Inflation remains more than half a percentage point above that target, based on the Fed's preferred personal consumption expenditure price index, and was described as "elevated" in the central bank's June 12 policy statement.
However, the latest data on inflation and overall economic activity suggest that price pressures may be easing, and investors expect a first-quarter rate cut at the Fed's September 17-18 meeting.
On the other hand, the number of job openings in the U.S. rose more than expected in May, in a sign of potential lingering firmness in the US labor market as the Federal Reserve considers lowering interest rates from their highest levels in more than two decades.
Job vacancies, a measure of labor demand, rose to 8.140 million on the last business day in May, up slightly from a revised downward total of 7.919 million in April, based on data from the Labor Department's Bureau of Labor Statistics on Tuesday. Economists had predicted that the Job Openings and Labor Turnover Survey, or JOLTS, report would be at 7.960 million.
