Federal Reserve Chair Jerome Powell Signals Potential Interest Rate Cuts in Congressional Testimony
Federal Reserve Chair Jerome Powell appeared before the Senate Banking Committee on Tuesday to provide an update on the state of the economy. In his testimony, Powell indicated that the central bank is moving closer to feeling comfortable about potential interest rate cuts.
Powell expressed optimism about the inflation outlook, noting that recent data has shown signs of cooling inflation. He stated that more “good data” would help the Fed reach its target inflation rate of 2%.
This is the second time in the past week that Powell has offered positive remarks on inflation. Last week, he mentioned that recent inflation readings suggest a return to a disinflationary path.
The next reading on inflation, as measured by the Consumer Price Index, is set to be released on Thursday. While it is not expected to show a worsening inflation trend, it is also not expected to decrease. Core CPI, which excludes volatile food and energy prices, is projected to remain steady at 3.4% in June.
Powell emphasized that the Fed will continue to make decisions on monetary policy on a meeting-by-meeting basis. He warned against lowering rates too quickly, as it could hinder progress on reducing inflation. On the other hand, keeping rates high for too long could negatively impact the economy and job market.
Democrats are likely to push for rate cuts in the near future, while Republicans may focus on bank capital rules and caution against cutting rates too close to the November election.
In his testimony, Powell underscored the importance of the Fed’s operational independence in fulfilling its dual mandate of maximum employment and stable prices. He emphasized the need for a long-term perspective in decision-making.
