Federal Reserve Chairman Jerome Powell speaks before the Senate Committee on Banking, Housing and Urban Affairs in Washington, DC, the United States, on Tuesday, July 9, 2024.
Tierney L. Cross Bloomberg | Getty Images
Fed Chairman Jerome Powell On Tuesday, it expressed concern that keeping interest rates too high for a long time could jeopardize economic growth.
Setting the stage for a two-day appearance on Capitol Hill this week, the central banker said the economy and labor market remained strong despite some recent cooling. Powell cited easing inflation and said policymakers remain firmly committed to their goal of getting inflation down to 2%.
“At the same time, given the progress we have made over the past two years in lowering inflation and cooling the labor market, higher inflation is not the only risk we face,” he said in prepared remarks. “Reducing policy restrictions too late may Too little could unduly weaken economic activity and employment.”
The comments come as the one-year anniversary of the last time the Federal Open Market Committee raised its benchmark interest rate approaches.
The Fed’s overnight borrowing rate is currently in a range of 5.25%-5.50%, which is the highest level in about 23 years and the result of 11 consecutive rate hikes after inflation reached its highest level since the early 1980s.
The market expects the Federal Reserve to start cutting interest rates in September and may cut interest rates by another 25 percentage points before the end of the year. However, members of the Federal Open Market Committee (FOMC) said at the June meeting Indicates only one incision.
“Increase our confidence”
In recent days, Powell and his colleagues have said, Inflation data is somewhat encouraging After an unexpected jump at the beginning of the year. Inflation based on Fed preference personal consumption expenditures price index After peaking above 7% in June 2022, it was 2.6% in May.
“We started the year lacking progress toward our 2 percent inflation goal, but recent monthly data suggest further progress,” Powell said. “More good data will increase our confidence that inflation will continue to move toward 2 percent.” ”
The statement is part of a congressionally mandated semiannual monetary policy update. After his speech, Powell will be questioned by members of the Senate Banking Committee on Tuesday and then by the House Financial Services Committee on Wednesday.
In past appearances, Powell has stopped making high-profile policy announcements and has had to fend off politically charged questions from committee members. The questioning is likely to be contentious this year as Washington is on edge amid a tumultuous presidential campaign.
Several Democratic committee members urged Powell to lower rates as soon as possible.
“I’m concerned that if the Fed waits too long to cut rates, the Fed could undo the progress we’ve made in creating good-paying jobs,” committee chairman Sen. Sherrod Brown, D-Ohio, told Powell. “If the unemployment rate is trending upward, you must act immediately to protect American jobs. If the Fed exceeds its inflation target and causes a completely unnecessary recession, workers will lose a lot.”
However, Powell emphasized that the Fed does not participate in politics and will not participate in policy formulation beyond its own responsibilities. In his prepared remarks, he emphasized the importance of the “operational independence required” for the Fed to fulfill its responsibilities.
His other remarks focused on policy stances related to the broader economy. Latest data display Unemployment rate rising Broad-based growth, as measured by gross domestic product, slowed. Both manufacturing and services contracted in June.
But Powell said the data showed “the U.S. economy continues to expand at a solid pace” despite a slowdown in gross domestic product.
“However, private domestic demand remains strong and consumer spending growth has slowed but remains solid,” he said.
