Federal Reserve Chairman Jerome Powell reiterated to lawmakers that policymakers are in no hurry to cut interest rates until they are confident they have won the fight against inflation.
In prepared testimony before a House committee on Wednesday, the Fed chief said it would likely be appropriate to begin lowering borrowing costs “at some point this year,” but the Fed is not yet ready to do so. It was made clear that there was no.
advertisement
Continue reading below
The remarks echoed a consistent message from nearly every Fed official in recent weeks. That means the economy and labor market are strong and policymakers have time to wait for further evidence that inflation is on target before cutting rates.
“Until there is greater confidence that inflation is on a sustained path toward 2%, it is appropriate for the committee to lower the target range,” Powell said in brief prepared remarks to the House Financial Services Committee. I don't think so.” He will testify at 10 a.m. Wednesday.
The Fed chief is on Capitol Hill for the first two days of his semiannual monetary policy testimony and is scheduled to appear before the Senate Banking Committee on Thursday.
Federal Reserve officials are in the final stages of aggressive efforts to rein in inflation. After raising the benchmark federal funds rate by more than 5 percentage points from March 2022, it has kept interest rates unchanged since July as price pressure eases.
Central bankers are currently grappling with how quickly and to what extent they should cut interest rates. Officials fear that cutting rates too soon could spur a rebound in economic activity and keep inflation above 2%, the rate they think is appropriate for a healthy economy. If borrowing costs continue to rise for too long, the economy risks sliding into recession.
“We believe rates are likely to have reached the peak of this tightening cycle,” Powell said in prepared remarks, repeating language he used at his previous press conference on Jan. 31. . It would be appropriate to begin reducing policy restraints at some point this year. However, the economic outlook remains uncertain and continued progress towards the 2% inflation target is not guaranteed. ”
Inflation slowed to 2.4% in the 12 months to January from a peak of 7.1% in June 2022. But price pressures have accelerated since December, and the fundamental measure that Powell often cites – prices for services excluding housing and energy – remains above pre-pandemic trends.
advertisement
Continue reading below
At the same time, demand for workers remains strong, with employers adding 353,000 jobs in January and economists expecting them to add another 200,000 jobs in February.
Fed officials say higher interest rates should continue to ripple through the economy, ultimately slowing growth that has been surprisingly strong over the past year. Still, some forecasters raised their estimates for economic output for the first quarter on hopes for higher consumer spending.
Reacting to the economy's surprisingly strong performance, policymakers have indicated they will keep interest rates high and, once they start cutting, they will probably do so more slowly than in the past, and perhaps at a less regular pace. There is.
Since the January meeting, officials have pushed back aggressively on expectations that they would cut rates at the March 19-20 meeting. Investors now expect the first rate cut to occur in June. They also expect three to four rate cuts this year, in line with Fed officials' median forecast in December. Policymakers are expected to present updated interest rate forecasts at a meeting this month.
Meanwhile, Democratic lawmakers are growing increasingly impatient with the U.S. central bank ahead of the November election. Senate Banking Committee Chairman Sherrod Brown, who is in a tough re-election bid in Ohio, argued in January that high interest rates are hurting small businesses and making homeownership unaffordable. In a letter to Mr. Powell dated March 30, he urged the Fed to lower interest rates “early this year.” For many Americans.
© 2024 Bloomberg