Federal Reserve chair Jerome Powell said rate-setters are “not far” from the point where they will make their first rate cut.
Speaking to the Senate Banking Committee, he said the Federal Open Market Committee will cut interest rates when it has confidence that inflation is on track to hit 2%.
“When we do get that confidence – and we’re not far from it – it will be appropriate to dial back that level of restriction.”
Earlier he acknowledged that rates are currently “well into restrictive territory”.
He also emphasised officials' awareness of the dangers of delaying policy loosening and said the Fed is keeping a close eye on the banking sector, particularly the worries that led to the major wobble for New York Community Bancorp (NYSE:NYCB) and wider concerns about commercial real estate.
The risks from real estate for banks are “manageable”, he said, but the Fed has also “identified the banks that have high commercial real estate concentrations... and we are in dialogue with them.”
Earlier Christine Lagarde, the European Central Bank President, hinted that policymakers might consider easing policy in June.
The ECB’s bearish signal supported the risk-sensitive EUR/USD but also lifted European stocks.
Powell and his FOMC colleagues next meet to decide policy the week after next, 19-20 March, a day before the Bank of England.
Markets are currently pricing just over 70% odds on the first Fed cut at the June 12 meeting, the first of three or four moves this year to bring rates down by a whole percentage point from the current Fed funds rate range of 5.25% to 5.5%.
As markets are pricing in a year-end Fed funds rate of 4.5%, this implies that traders are unsure whether the Fed will cut three or four times this year.
In what is a US election year, he said cuts "really will depend on the path of the economy".
"We are just going to keep our heads down and do our jobs and try to deliver what the public is expecting from us."