Federal Reserve Chairman Jerome Powell told lawmakers Tuesday that central banks see little urgency towards lowering interest rates, citing the resilient labor market and prolonged inflation risks.
The comment reinforced expectations that the Fed will remain stable at the next meeting despite the economic situation becoming softer last year.
“Our policy stance is far less restrictive than ever and the economy remains strong, so there's no need to rush to adjust it,” Powell said. Prepared remarks We will begin testimony for two days before Congress to the Senate Banking Committee.
Optimism rises when the economy exceeds the Fed's expectations
The Fed's stance is due to rising economic confidence in response to the Donald Trump election, strengthened by steady employment growth and strong consumer spending. Since President Donald Trump's election victory in November, the market has recovered, business sentiment has improved, and much of 2024 has reversed dominant concerns.
Powell admitted that the labor market situation remains superior to what Fed officials predicted last year. The unemployment rate fell to 4% in January, with employment profits of 189,000 per month over the past four months. Wage growth was eased without causing a surge in layoffs. This is Powell, described as evidence of a “broadly balanced” labor market.
At the same time, slowing inflation progress was slow, and Development Powell suggested that the Fed's pivot would justify a more patient stance. The Fed's preferred inflation gauge, the Personal Consumption Expense (PCE) price index, fell from its 7.2% peak in 2022, at 2.6%, but surpassed the central bank's 2% target.
“If the economy remains strong and inflation does not continue to move sustainably to 2%, we can maintain policy restraint for longer,” Powell said. “If the labor market is unexpectedly weakened or if inflation drops faster than expected, policies can be eased accordingly.”
Fed policy shifts after election
Powell's focus on patience comes after the Fed was cut in the final three meetings of 2024, and then reduced borrowing costs in full points. These cuts were led by a presidential election where economic concerns were at the forefront and center of voters, and criticised that the Fed risked the appearance of juicy in order to strengthen Democratic incumbents. This led to.
Currently, Trump's White House economy is performing better than the Fed expected, so the central bank's decision to suspend the rate reduction cycle raises questions about its consistency . Powell argued that the Fed will remain focused on the dual mission of price stability and maximum employment, but some financial markets will wait under Trump from the cutting cycle under Biden We may focus on optics that shift to the approach inwards.
The unknown key to the Fed is how Trump's policy agenda will affect inflation and growth. Powell was pushed by lawmakers over the administration's plans to expand tariffs on Chinese imports and other goods, making moves that could push prices up and complicate the Fed's fight for inflation.
“We are paying attention to risks on both sides of our dual mission, and our policies are well positioned to address the risks and uncertainties we face,” Powell said. Ta.
Some Fed officials have begun to consider potential trade disruptions in their economic outlook, while others are only a time to adjust their forecasts based on policies that have not yet been fully effective. Some argue that it's too early.
Soft landing? Powell says, “I have nothing to say.”
He was asked if the US economy is achieving an elusive “soft landing” – attracting inflation under control without causing a massive recession – Powell denied. “It's not what I say to me,” he replied, but he admitted that economic growth is stronger than many people expected.
GDP grew 2.5% in 2024, strengthening by demand from resilient consumers and stable investment. The economy has so far countered the recession horrors that came out when the Fed began actively raising prices in 2022.
Investors are currently hoping to cut fees by less than twice this year, and initially not fully priced until September. Powell is scheduled to testify before the House Financial Services Committee on Wednesday.
