Federal Reserve Chairman Jerome Powell expressed caution about progress against inflation during the first day of congressional hearings. Powell’s testimony came as part of discussions about the Federal Reserve’s semiannual monetary policy report published last week.
“If the economy develops broadly as expected, it will likely be appropriate to begin unwinding policy restrictions at some point this year,” Powell said. However, he pointed out that continued progress towards the 2% inflation target is not guaranteed.
The Fed has already raised its key lending rate to its highest level in 23 years, and has succeeded in curbing inflation from multi-decade highs towards its long-term target. Powell acknowledged “the bumpy road ahead, with inflation remaining high and the labor market resilient to rising interest rates.”
In response to market expectations of an early interest rate cut, Powell stated that the Federal Reserve’s interest rate-setting committee does not expect a cut until there is greater confidence in inflation’s sustained movement towards 2%. He stressed that policymakers remain committed to reducing inflation, but stressed the need for additional data.
Powell faced questions about proposed changes to banking regulation during the hearings, and revealed that the Fed is carefully analyzing responses to his proposals. These proposals include plans to require banks with assets of more than $100 billion to increase their capital holdings.
Powell confirmed that the US economy is not at risk of entering into a recession (Reuters)
Uncertainty but…no stagnation
As hearings continued into the second day, Powell addressed lawmakers’ concerns about the possibility of lower interest rates. Powell stressed that the American economy is not at risk of entering into a recession, saying: “There is no evidence, and no reason to believe, that the American economy is in a state of recession, or in some kind of short-term risk of falling into a recession.”
While he expressed confidence in the current economic path, Powell refrained from committing to a timetable for lowering interest rates. He acknowledged the delicate balance between waiting too long to ease monetary policy and the risk of easing too early, allowing inflation to accelerate.
Powell believed that inflation would decline and that the economy would continue to grow, adding that it would then be appropriate to reduce interest rates significantly in the coming years. However, he added, continued progress in reducing inflation is not guaranteed, which makes the Federal Reserve cautious about setting a specific timetable for interest rate cuts.
Powell is scheduled to appear before the Senate Banking Committee on Thursday, to provide more insights into the Fed’s approach to monetary policy and banking regulation.
2024-03-06 21:01:01
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