US Fed chair says disinflationary trend resuming, more confidence needed to start monetary loosening

US Fed chair says disinflationary trend resuming, more confidence needed to start monetary loosening

European Central Bank President Christine Lagarde says ECB 'very advanced' at disinflationary path, sees slow economic recovery

By Ovunc Kutlu

ISTANBUL (AA) - The Federal Reserve Chair Jerome Powell said Tuesday that inflation in the US shows signs of resuming a disinflationary trend, but the Fed needs more confidence to start monetary loosening.

Powell said the American economy saw solid growth in the first half, while labor market remains strong, and inflation, after pausing in the first quarter, now shows signs of resuming a disinflationary trend.

"We made quite a bit of process of bringing back inflation down to our target, while the labor market has remained strong, growth has continued. We want that process to continue," he said at the European Central Bank (ECB) Forum on Central Banking 2024 held in Sintra, Portugal.

Powell noted that the last two inflation data showed the Fed is getting back on a disinflationary path, and added "We want to be more confident that inflation is moving down to 2% before we start our loosening policy."

When asked about how much more confidence, Powell said "Because the US economy and the labor market are strong, we have the ability to take our time and get this right."

The Fed chair, however, did not provide any answer as to whether the US central bank would start lowering its benchmark interest rate in September.

"If we go too soon, we can undo the good work we've done in bringing down inflation, and if we go too late we can unnecessarily undermine the (economic) recovery and expansion," he explained.

ECB President Christine Lagarde said the central bank 'very advanced' at disinflationary path, and it sees slow economic recovery.

"We still believe that it is going to be a bumpy road until the end of 2024, but we still have (inflation) target (of 2%) at the second half of 2025," she said. "Services (inflation) hasn't budged ... Obviously, we are very attentive to the components and what is behind services."

"This is caused by permeant changes, and also a factor of a lag effect of other components which are finding their way more slowly and gradually into services," she added. "We do have the services number that has gone slightly up in the recent months, which is now staying at 4.1%."

Lagarde said the ECB does not need the services inflation below 2%, and noted that manufacturing goods inflation is below 2%.

"At the end of the day, there's going to be a balance between goods and services, and the weight of those within the index. But, we have to look really what is behind it," and listed those as real wages, renegotiation of wages in the EU, declining profits, and increasing cost of wages.

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