Newsjerome powell
Jul 10, 2024 02:06 PM EDT
In reference to recent data that indicates the labor market and inflation are still cooling, Federal Reserve Chair Jerome Powell stated on Tuesday that "more good data" may pave the way for interest rate reductions.
After reviewing statistics indicating persistently strong inflation, the central bank decided to scrap its prior prediction of three rate cuts this year and instead pencil in only one rate decrease in 2024. The decision was made during the June meeting. Since July 2023, the Federal Reserve's federal fund rate has been between 5.25% to 5.5%, which is the highest level in 23 years, following a rush of rate rises.
Speaking Tuesday morning at a Senate Banking Committee meeting, Powell emphasized that, with the most recent consumer price index at 3.3%, the central bank needs to see further progress toward getting the annual inflation rate down to about 2% before reducing rates. However, the Fed is worried about the consequences of delaying rate cuts for too long, as the chair pointed out, adding that "elevated inflation is not the only risk we face."
At the beginning of the two-day semi-annual testimony to Congress, the Federal Reserve chair spoke to the Senate committee. He is scheduled to speak before the House Financial Services Committee on Wednesday.
There are indications of softening in the latest economic figures. For example, the unemployment rate, albeit relatively low, rose to 4.1% in June, he said, but payroll job additions in the first half of 2024 averaged around 222,000 per month. Powell pointed out that the jobs-to-workers gap has decreased from a pandemic peak and is currently at around its 2019 level.
The June consumer price index, which is released on Thursday, is the next significant piece of economic data that the Fed will analyze. According to financial data firm FactSet, economists predict that last month's inflation increased at an annual rate of 3.1%.
In an attempt to stem inflation, which peaked at 9.1% two years earlier, the Fed hiked its benchmark interest rate eleven times between March 2022 and July 2023, reaching a two-decade high of 5.3%. These rate increases raised the cost of borrowing for consumers by increasing rates on credit cards, auto loans, and mortgages, among other types of borrowing. The intention was to calm the economy by reducing borrowing and expenditure.
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Powell stated on Tuesday that the Fed's policymakers' confidence in the management of inflation was not increased by the inflation figures for the first three months of this year.
He emphasized the Fed's independence in his hearing, saying that it "is needed to take a longer-term perspective" on inflation and interest rate policy. Economists have long held that central banks must be shielded from political pressure in order to be able to implement measures like raising borrowing costs, which are sometimes politically unpopular attempts to halt price increases.
In an extremely rare criticism from a sitting president, Donald Trump often criticized Powell-the person he had picked to lead the Fed-for hiking interest rates during his administration. Powell would not be renominated by Trump in the event that he were to win the presidency again.
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