Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee, delivering prepared remarks that highlighted recent positive developments in inflation and a cooling labor market. Powell’s testimony focused on the delicate balance the Fed must strike to manage economic risks effectively.
Prices & Labor: “In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face. Reducing policy restraint too late or too little could unduly weaken economic activity and employment,” Powell stated. He emphasized that while inflation concerns have been a priority, the cooling labor market has significantly altered the risk landscape.
- “For a long time, the risks were more that we would fail to hit our inflation target, but now concerns about prices and labor are coming much more into balance,” Powell noted. “We’re very much aware that we have two-sided risks now.” This shift acknowledges the need to balance efforts to control inflation with the potential impact on employment and overall economic activity.
Rate Cuts: During the hearing, Senator Sherrod Brown questioned Powell about the timing of future rate cuts. Powell responded, “Today, I’m not going to be sending any signals about the timing of future actions.” His cautious approach underscored the Fed’s focus on data-driven decisions rather than committing to a specific timeline for policy changes.
- Jason Furman, former chair of the Council of Economic Advisers, commented on Twitter, “It’s still forward guidance when the probability of a future cut is much greater than the probability of a future increase.” Furman’s remark highlights the market’s interpretation of Powell’s stance as indicative of a likely shift toward rate cuts, even if Powell refrained from explicit confirmation.
Powell’s testimony reflects the Federal Reserve’s current cautious yet optimistic outlook. The central bank acknowledges the progress in managing inflation while remaining vigilant about the potential for economic and employment impacts. As the Fed continues to navigate these dual risks, future policy decisions will be closely watched by market participants and policymakers alike.
