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Chairman of the Federal Reserve System Jerome Powell He said Tuesday that policymakers were encouraged by recent data suggesting inflation was receding, and continued progress would strengthen the case for cutting interest rates.
“The data for the first quarter of this year did not support that great confidence. But the latest inflation measures suggest some further progress, and further better data will strengthen our confidence that inflation is on a sustained path to 2 percent,” Powell said in remarks prepared for testimony before the Senate Banking Committee.
The Federal Reserve chairman will appear on Capitol Hill for the first of two days of semi-annual testimony on monetary policy. He is scheduled to appear before the House Financial Services Committee on Wednesday.
Fed keeps interest rates at 23-year high, expected to cut only once this year
Federal Reserve Chairman Jerome Powell speaks during a hearing of the Senate Banking, Housing and Urban Affairs Committee, Tuesday, March 7, 2023, in Washington, DC. (Photographer: Al Drago/Bloomberg via Getty Images/Getty Images)
Powell also said officials were trying to strike a balance between cutting rates too soon, which risks sparking inflation back up, and slowing the economy and potentially lowering rates too late. cause a recession.
“Given the progress made over the past two years in both containing inflation and cooling labor markets, higher inflation is not the only risk we face,” he said. “Removing policy restraints too late or not enough could weaken economic activity and employment too much.”
The authorities voted At its last meeting in May, the Fed decided to keep interest rates on hold at a range of 5.25 percent to 5.5 percent, the highest level since 2001. In a statement after the meeting, policymakers left the door open to a rate cut this year but stressed they needed “further confidence” that inflation was falling before easing policy.
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Since then, there is some evidence that inflation has started to ease again. Personal Consumption Expenditures Index for May The data showed inflation slowing to 2.6% from a peak of 7.1%. At the same time, core prices, which the Fed watches more closely because they exclude more volatile measures such as food and energy, rose 2.6%, the slowest annual increase since March 2021.
The Marriner S. Eccles Federal Reserve Building is photographed on September 19, 2022 in Washington, DC. (Photo by Kevin Dietsch/Getty Images/Getty Images)
“While we saw little progress toward our 2 percent inflation goal early this year, the most recent monthly data suggest further, moderate progress,” Powell said.
Most investors now expect the Fed to start cutting rates in September or November, with just two cuts this year — a dramatic change from earlier this year, when they expected as many as six rate cuts to begin as early as March.
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When interest rates rise, they tend to push up interest rates on consumer and business loans, forcing employers to cut spending and slowing the economy. Rising rates have pushed the average interest rate on a 30-year mortgage above 8% for the first time in decades. The cost of all kinds of borrowing, including home equity loans, auto loans and credit cards, has also skyrocketed.
