Jerome H. Powell, the chair of the Federal Reserve, stated on Friday that resilient financial development is giving the central financial institution the pliability to be affected person earlier than reducing rates of interest.

Fed officers raised rates of interest sharply from early 2022 to mid-2023, and so they have left them at about 5.3 % since final July. That comparatively excessive stage primarily faucets the brakes on the financial system, partially by making it costly to borrow to purchase a home or begin a enterprise. The purpose is to maintain charges excessive sufficient, for lengthy sufficient, to wrestle inflation again below management.

However value will increase have cooled notably in latest months — inflation ran at 2.5 % in February, a report on Friday confirmed, far under its 7.1 % peak in 2022 for that gauge and simply barely above the Fed’s 2 % purpose. On condition that slowdown, officers have been contemplating when and the way a lot they’ll reduce rates of interest this 12 months.

Whereas buyers have been initially hopeful that price cuts would come early within the 12 months and be substantial, Fed officers have not too long ago struck a cautious tone, sustaining that they need better confidence that inflation was below management. Mr. Powell reiterated that message on Friday.

“We are able to, and we can be, cautious about this choice — as a result of we could be,” Mr. Powell stated, talking in a question-and-answer session with the “Market” host Kai Ryssdal in San Francisco. “The financial system is powerful: We see very sturdy development.”

Friday’s Private Consumption Expenditures report confirmed that buyers are nonetheless spending at a speedy clip. Current hiring information has additionally remained stable. In all, the financial system appears to be holding up even with the Fed’s excessive rates of interest.

“That implies that we don’t should be in a rush to chop,” Mr. Powell stated. “It means we will wait and develop into extra assured that, actually, inflation is coming right down to 2 % on a sustainable foundation.”

The Fed is attempting to steadiness two dangers: On one hand, officers don’t wish to preserve rates of interest too excessive for too lengthy, risking an pointless recession. On the opposite, they don’t wish to reduce rates of interest too early, earlier than inflation is totally below management.

If excessive inflation lingers for years on finish, it may develop into embedded within the financial system as folks and corporations alter their habits, making it even more durable to stamp out in the long term.

Traders presently count on that the Fed may start decreasing charges in June. Fed officers projected final week that they have been more likely to make three quarter-point price cuts earlier than the tip of this 12 months.

Whereas the financial system seems to be sturdy for now, Mr. Powell recommended that if the job market started to indicate indicators of cracking, the Fed may react.

“If we have been to see surprising weak spot within the labor market,” Mr. Powell stated, “then that’s one thing we’d be rigorously, and will draw a response as properly.”

The Fed chair stated that whereas there’s all the time an opportunity of a recession, he didn’t assume that the chance was excessive in the intervening time.

“There’s no purpose to assume that the financial system is in a recession or is on the edge of 1,” Mr. Powell stated.

“However — humility,” he added.

And Mr. Powell repeatedly alluded to the elephant within the room because the nation barrels towards November’s presidential election: the politics of rate of interest cuts. There’s a threat that the central financial institution may very well be criticized for reducing borrowing prices within the run-up to the election, since doing so may help markets and the financial system and could be perceived as favoring the incumbent.

Former President Donald J. Trump, the presumptive Republican nominee, has already criticized the Fed for being political and stated that Mr. Powell was “going to do one thing to in all probability assist the Democrats.” Mr. Trump first elevated Mr. Powell to the position of Fed chair, although he has since been reappointed to the position by President Biden.

The Fed is impartial of the White Home, and its officers stress that they set coverage with an eye fixed on the financial system, not politics. Mr. Powell didn’t particularly reference Mr. Trump’s feedback, however he did reiterate the Fed’s dedication to independence on Friday.

“Integrity is all the things,” Mr. Powell stated. “We’re working to serve all Individuals, not any explicit set of Individuals or political events or leaders.”