WASHINGTON, D.C. — The Federal Reserve faces a cooling job market and persistently high prices, Chair Jerome Powell said in testimony Tuesday. This shift in emphasis away from the Fed’s single-minded fight against inflation of the past two years suggests it is moving closer to cutting interest rates.
Powell told the Senate Banking Committee that the Fed has made “considerable progress” toward defeating the worst inflation spike in four decades.
“Inflation has eased notably” in the past two years, though it remains above the central bank’s 2% target.
Powell noted that “elevated inflation is not the only risk we face.” Cutting rates “too late or too little could unduly weaken economic activity and employment,” he said.
From March 2022 to July 2023, the Fed raised its benchmark interest rate 11 times to a two-decade high of 5.3% to fight inflation, which peaked at 9.1% two years ago. Those hikes increased the cost of consumer borrowing by raising rates for mortgages, auto loans and credit cards, among other forms of borrowing.
In the past, Powell and other Fed policymakers have repeatedly stressed that the economy’s strength and low unemployment rate meant they could be patient about cutting rates and wait to ensure that inflation was truly in check.
But on Tuesday, Powell said the job market has “cooled while remaining strong.” He added that the economy’s growth has moderated after a strong expansion in the second half of last year. Last week, the government reported that hiring remained solid in June, though the unemployment rate rose for a third straight month to 4.1%.
Powell did not provide what Wall Street investors are watching most closely: any clear indication of when the Fed might make its first rate cut. But his testimony will likely harden investors’ and economists’ expectations that the first reduction will come at the central bank’s September meeting.
