RATE CUTS? MAYBE
No promises: Fed
Federal Reserve Chairman Jerome Powell told US lawmakers Wednesday that he still expects rate cuts later this year, but added that progress on lowering inflation “is not assured.”
“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell (inset) said at a hearing before the House Financial Services Committee. “But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.”
Even so, Powell told committee members that “there’s no evidence, there’s no reason to think, that the US economy is in, or in some kind of short-term risk of, falling into recession.” Far from it, Powell said the Fed was on a “good path” to achieve its hoped-for soft landing in which inflation continues falling to its 2% target while the economy grows and the unemployment rate, currently 3.7%, remains low.
Powell’s commentary held close to the language he and his colleagues have used to characterize the current state of the economy, where the inflation reading rose a hotter-than-expected 3.1%, per January’s Consumer Price Index — which tracks changes in the costs of everyday goods and services — and interest rates sit at a 22-year high.
He noted that inflation had “eased substantially” since hitting a 40-year peak in 2022, and said there were risks of both cutting rates too soon and allowing inflation to reaccelerate, especially during an election year as a rematch between Democratic incumbent President Biden and former Republican President Donald Trump takes shape.
“We’re in a political year,” reiterated House Financial Services Committee Chairman Patrick McHenry, a North Carolina Republican, as he quizzed Powell on the central bank’s rate-cut plans and noted that everything the Fed does would be seen through the “lens” of the presidential election in November.
Rate cuts “really will depend on the path of the economy,” Powell said.
He remained reluctant to say when monetary policy might ease, repeating that officials still need “greater confidence” in a continued decline of inflation before they reduce the benchmark federal funds rate, which has been held in the 5.25% to 5.5% range, the highest in more than 20 years, since July.