Powell: Inflation above target can still further reduce interest rates

On December 19, Federal Reserve Chairman Powell explained at a press conference why higher inflation than the Fed's target can be compatible with further rate cuts. He stated that even if next year's inflation rate only drops to 2.5%, the Fed may still cut rates as shown in the dot plot because inflation will be moving in the right direction. Powell further explained that if next year's core PCE inflation annual rate drops to 2.5%, what we see is meaningful progress in reducing inflation. According to FOMC's latest quarterly economic forecast summary, the Fed expects PCE and core PCE inflation to only drop to 2.5% by 2025, which is still above the Fed's target of 2%, while it anticipates two rate cuts by then.