Federal Reserve Chairman Jerome Powell has predicted that inflation in the United States could return to the central bank’s 2% target by the end of 2025 or the following year, although he has indicated that policymakers “will take their time” before implementing possible interest rate cuts.

Powell, who was speaking at a panel discussion held in Sintra, Portugal, as part of a European Central Bank event, noted that the labor market, one of the main drivers of inflation, is experiencing a “cooling”, and that wage increases are returning to “more sustainable levels”.

According to Powell, the Fed has also made “significant progress” in slowing the pace of price increases to 2%. However, echoing the recent views of other Fed officials, he added that more evidence is needed to decide whether the downward trend is lasting.

Inflation in the services sector, which accounts for a significant part of the U.S. economy, is also typically “stickier,” Powell said.

U.S. stocks pared some earlier losses as Powell spoke, as 10-year U.S. Treasury yields, which usually move inversely to prices, fell.

Powell’s comments precede Wednesday’s release of the minutes of the Fed’s June monetary policy meeting, when the central bank’s Federal Open Market Committee (FOMC) announced that it only plans to cut borrowing costs once this year, down from three in March.

Nevertheless, traders, buoyed by hopes for a steady cooling of U.S. inflation, are still betting that the Fed will make roughly two cuts in 2024 starting in September, according to CME Group’s (CME) closely watched FedWatch tool.