WASHINGTON – Federal Reserve Chair Jerome Powell signaled Wednesday that the central bank is preparing for its first interest rate cut of 2026, with markets now pricing in a reduction at the June policy meeting.

Speaking after the Federal Open Market Committee’s latest decision to hold rates steady at 4.25-4.50%, Powell indicated that inflation has moved sufficiently close to the Fed’s 2% target to warrant policy easing. “The economy is in a good place, and we are approaching the point where it will be appropriate to reduce the restrictiveness of policy,” Powell told reporters.

The Fed’s preferred inflation gauge, the core PCE price index, fell to 2.3% in March, down from 2.8% a year earlier. Unemployment remains low at 4.1%, while GDP growth has moderated to a sustainable 2.2% annual rate.

Markets reacted positively to Powell’s comments, with the S&P 500 rising 1.2% and the Nasdaq gaining 1.5%. Treasury yields fell, with the 10-year note dropping to 4.15%.

“This is exactly what the market wanted to hear,” said chief economist Sarah House of Wells Fargo. “The Fed is threading the needle between cutting too soon and waiting too long.”

Analysts expect the Fed to cut rates by 25 basis points in June, with potentially two more cuts before year-end. The European Central Bank and Bank of England are expected to follow similar paths.