WASHINGTON (AP) — Chair Jerome Powell said Monday that the Federal Reserve is becoming more convinced that inflation is headed back to its 2% target and said the Fed would cut rates before the pace of price increases actually reached that point.

“We’ve had three better readings, and if you average them, that’s a pretty good pace,” Powell said of inflation in a question-and-answer question at the Economic Club of Washington. Those figures, he said, “do add to confidence” that inflation is slowing sustainably.

Powell declined to provide any hints of when the first rate cut would occur. But most economists foresee the first cut occurring in September, and after Powell’s remarks Wall Street traders boosted their expectation that the Fed would reduce its key rate then from its 23-year high. The futures markets expect additional rate cuts in November and December.

“Today,” Powell said, “I’m not going to send any signals on any particular meeting.”

Rate reductions by the Fed would, over time, reduce consumers’ borrowing costs for things like mortgages, auto loans, and credit cards.

Last week, the government reported that consumer prices declined slightly from May to June, bringing inflation down to a year-over-year rate of 3%, from 3.3% in May. So-called “core” prices, which exclude volatile energy and food costs and often provide a better read of where inflation is likely headed, climbed 3.3% from a year earlier, below 3.4% in May.

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In his remarks Monday, Powell stressed that the Fed did not need to wait until inflation actually reached 2% to cut borrowing costs.

“If you wait until inflation gets all the way down to 2%, you’ve probably waited too long,” Powell said, because it takes time for the Fed’s policies to affect the economy.

After several high inflation readings at the start of the year had raised some concerns, Fed officials said they would need to see several months of declining price readings to be confident enough that inflation was fading sustainably toward its target level. June was the third straight month in which inflation cooled on an annual basis.

After the government’s latest encouraging inflation report Thursday, Mary Daly, president of the Fed’s San Francisco branch, signaled that rate cuts were getting closer. Daly said it was “likely that some policy adjustments will be warranted,” though she didn’t suggest any specific timing or number of rate reductions.

In a call with reporters, Daly struck an upbeat tone, saying that June’s consumer price report showed that “we’ve got that kind of gradual reduction in inflation that we’ve been watching for and looking for, which ... is actually increasing confidence that we are on path to 2% inflation.”

Many drivers of price acceleration are slowing, solidifying the Fed’s confidence that inflation is being fully tamed after having steadily eased from a four-decade peak in 2022.

Thursday’s inflation report reflected a long-anticipated decline in rental and housing costs. Those costs had jumped in the aftermath of the pandemic as many Americans moved in search of more spacious living space to work from home.

Hiring and job openings are also cooling, thereby reducing the need for many businesses to ramp up pay in order to fill jobs. Sharply higher wages can drive up inflation if companies respond by raising prices to cover their higher labor costs.

Last week before a Senate committee, Powell noted that the job market had “cooled considerably,” and was not “a source of broad inflationary pressures for the economy.”

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