Nick Timiraos, a well-known Wall Street Journal reporter and known as the 'Fed megaphone', wrote in his latest article that the overnight Federal Reserve chairman Powell talked about inflation progress, bringing interest rate cuts back into view. The following is the content of his article.

Powell said that he is satisfied with the situation that the inflation rate rebounded at the beginning of the year and then picked up the decline, but he said it is still too early to assert whether the Fed would cut interest rates in late summer as investors increasingly expect.

Powell said during a group discussion with other central bank governors on Tuesday in Portugal: 'We have made great progress.' He said that two years ago, severe labor shortages led to a significant increase in wages, and now the labor market 'has taken a significant step towards better balance'.

Powell's speech highlighted a cautious and optimistic mood that receded after disappointing inflation data in April. He said that the economy has made 'significant progress', 'real progress', and 'considerable progress' in reducing inflation while achieving stable growth.

However, he remained cautious about interest rate cuts, which indicates that the likelihood of a rate cut at the Fed's meeting later this month is still slim. Fed officials have been especially cautious about cutting interest rates too early after unexpected price increases at the beginning of the year.

Powell said: 'We want to have more confidence in the declining trend of inflation. We want to understand that the level we see is a true interpretation of basic inflation.'

Economic forecasts released last month showed that if inflation slows down, US economic growth will be steady but not outstanding, and most Fed officials expect to cut interest rates once or twice this year. The next FOMC meeting will be held on July 30-31, and it is expected that they will stabilize the interest rate at the highest level in over 20 years. The focus of the market's attention is whether officials will lay the foundation for interest rate cuts at the September meeting.

Before that, officials will also see three months of recruitment, inflation and expenditure data, so it is difficult to firmly comment on a delicate balance. Powell refused to disclose whether he was prepared for a rate cut in September. He said: 'I won't set any specific date here today.'

According to data from the CME Group, investors in the interest rate futures market believe that the Fed's first interest rate cut before September is about 70%. US stock indices rose on Tuesday, with the S&P 500 and Nasdaq Composite indices hitting historic highs.

To decide whether to cut interest rates and when to cut interest rates, officials must balance two risks. The first risk is that the labor market continues to cool down, and once it starts, it is difficult to stop. The second risk is that interest rate cuts may ignite economic activity and inflation rates may be higher than the target.

According to the Fed's preferred index, the inflation rate in May fell to 2.6%, lower than 4% a year ago, but still higher than the Fed's target of 2%. Fed officials said that as long as the labor market remains healthy, they can gradually cut interest rates. Although job growth has been steady in the US this year, there are signs that the slowdown in consumer spending is finally in line with officials' long-held expectations. Powell said: 'We are very clear that we have two-sided risks.'

In 2022 and 2023, the Fed raised interest rates at the fastest pace in 40 years to deal with inflation, which has also risen to the highest level in 40 years. Since July last year, they have maintained the benchmark interest rate between 5.25% and 5.5%.

In the second half of last year, although spending and recruitment were strong, price growth slowed rapidly, which surprised Fed officials and shifted their attention from raising interest rates to waiting for how long before cutting them. However, inflation rebounded thereafter, which broke investors' and the Fed's expectation that the Fed may have been able to cut interest rates.

Powell shifted people's concerns about strong inflation in the service industry on Tuesday, saying that inflation in certain service industries such as housing reflects higher prices that lag behind and may not reflect current supply-demand dynamics.

Instead, Powell focused on the labor market and wages, both of which have gradually slowed down, which obviously pleased him. He said: 'You can see that the labor market is cooling down properly, and we are watching it carefully.' Powell reiterated his view that a sudden deterioration in employment growth could stimulate the Fed to turn to interest rate cuts faster.

Edited by Jeffrey