Federal reserve building, Washington DC

Inflation in the United States is slowing again after higher readings earlier this year, Federal Reserve Chair Jerome Powell said Tuesday, while adding that more such evidence would be needed before the Fed would cut interest rates.

After some persistently high inflation reports at the start of 2024, Powell said, the data for April and May “do suggest we are getting back on a disinflationary path.”

Speaking in a panel discussion at the European Central Bank’s monetary policy conference in Sintra, Portugal, Powell said Fed officials still want to see annual price growth slow further toward their 2% target before they would feel confident of having fully defeated high inflation.

“We just want to understand that the levels that we’re seeing are a true reading of underlying inflation,” he added.

On Friday, the government reported that consumer prices, according to the Fed’s preferred measure, were unchanged from April to May, the mildest such reading in more than four years. And compared with a year earlier, inflation dropped to just 2.6% in May, from 2.7% in April, the government said.

Excluding volatile food and energy costs, “core” prices also barely rose from April to May. On a year-over-year basis, core inflation fell to 2.6% from 2.8% in April. The latest inflation figures were a sharp improvement from early this year.

In his appearance Tuesday, Powell said the U.S. economy and job market remain fundamentally healthy, which means the Fed can take its time in deciding when rate cuts are appropriate. Most economists think the Fed’s first rate cut will occur in September, with potentially another cut to follow by year’s end.

The Fed chair also said the job market is “cooling off appropriately,” which likely means that it won’t heighten inflationary pressures through rapid wage gains.

“It doesn’t look like it’s heating up or presenting a big problem for inflation going forward,” Powell said of the job market. “It looks like it’s doing just what you would want it to do, which is to cool off over time.”