Federal Reserve Chairman Jerome Powell speaks during a House Financial Services Committee hearing on the “Federal Reserve’s Semiannual Monetary Policy Report” on Capitol Hill in Washington, U.S., March 6, 2024.
Bonnie Cash | Reuters
Federal Reserve Chairman Jerome Powell expressed concern Tuesday that keeping interest rates too high for too long could jeopardize economic growth.
Setting the stage for a two-day speech on Capitol Hill this week, the central bank chief said the economy remains strong, as does the labor market, despite a recent slowdown. Powell cited some slowdown in inflation, which he said remains committed to bringing it back to its 2% target.
“At the same time, given the progress made over the past two years in reducing inflation and cooling the labor market, high inflation is not the only risk we face,” he said in prepared remarks. “Reducing monetary policy too late or too little could unduly weaken economic activity and employment.”
The commentary coincides with the one-year anniversary of the Federal Open Market Committee’s last hike in benchmark interest rates.
The Fed’s overnight borrowing rate is currently between 5.25% and 5.5%, the highest level in 23 years and the product of 11 consecutive increases after inflation hit its highest level since the early 1980s.
Markets expect the Fed to begin cutting rates in September and then deliver another quarter-percentage-point cut by the end of the year. However, FOMC members announced only one rate cut at their June meeting.
In recent days, Powell and his colleagues have indicated that recent inflation data have been quite encouraging after a surprise jump earlier this year. Inflation, as measured by the Fed’s preferred personal consumption expenditures price index, came in at 2.6% in May after peaking at more than 7% in June 2022.
“After a lack of progress toward our 2 percent inflation target earlier this year, recent monthly data have shown further modest progress,” Powell said. “Further positive data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”
The statement is part of Congress’s mandated semiannual updates on monetary policy. After delivering 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 previous appearances, Powell has avoided making dramatic policy announcements and has had to dodge politically charged questions from committee members. The questions could become contentious this year, with Washington on edge due to a volatile presidential campaign.
Powell stressed, however, that the Fed is not political and does not engage in policy positions outside of its own roles.
His other remarks focused on the direction of policy relative to the broader economy. Recent data show that the unemployment rate is rising and overall growth, as measured by gross domestic product, is declining. Both the manufacturing and services sectors reported contractions in June.
But Powell said the data shows that “the U.S. economy continues to grow at a solid pace” despite the deceleration in GDP.
“Private domestic demand remains robust, however, with slower but still solid increases in consumer spending,” he said.
News Source : www.cnbc.com
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