Investing.com -- Federal Reserve Chair Jerome Powell has predicted that inflation in the U.S. may return to the central bank's 2% target by late 2025 or the following year, but flagged that policymakers will "take their time" before rolling out potential interest rate cuts.
Speaking in a panel discussion at an European Central Bank event in Sintra, Portugal, Powell noted that the labor market -- a major driver of inflation -- is showing signs of "cooling off," with wage increases easing back towards "more sustainable levels."
The Fed has also made "significant progress" in bringing the pace of price gains back down to 2%, Powell said, although, echoing the recent sentiments of several other Fed officials, he added that more evidence is needed to determine if the downward trend is sustainable.
Inflation in the services sector, which makes up a major portion of the American economy, is also "usually stickier," Powell said.
U.S. stock pared back some earlier losses as Powell spoke, while 10-year U.S. Treasury yields, which typically move inversely to prices, dipped.
Powell's comments serve as a precursor to the publication on Wednesday of minutes from the Fed's June policy gathering, when the central bank's rate-setting Federal Open Market Committee (FOMC) signaled that it only expects to reduce borrowing costs once this year -- down from three in March.
Yet traders, buoyed by hopes for a continued cooling in U.S. inflation, are still betting the Fed will roll out roughly two cuts in 2024 beginning in September, according to CME Group's (NASDAQ:CME) closely-monitored FedWatch Tool.