Powell Warns Against Premature Rate Cuts Amid Inflation Battle Read CoinChapter.com on Google News
NAIROBI (CoinChapter.com)—Federal Reserve Chair Jerome Powell emphasized that recent data do not support the confidence needed to cut rates, citing persistent inflation concerns.
The Fed chair delivered these remarks ahead of a two-day testimony before Congress. Powell highlighted the economy’s resilience and the labor market’s strength despite some signs of cooling.
Fed chair Powell feels inflation is not cooled enough for rate cuts. Source: Watcher.Guru Federal Reserve’s Stance on Interest Rates Remains Firm
Powell highlighted the Federal Reserve’s commitment to achieving its 2% inflation target during his semiannual testimony on Capitol Hill. The Fed chief noted that while inflation has eased from its peak, policymakers remain cautious about reducing policy restraint too quickly.
Moreover, Jerome Powell emphasized that insufficient or delayed reduction of policy restraint could significantly harm economic activity and employment.
The Fed’s current overnight borrowing rate is 5.25%-5.50%, the highest in 23 years, following 11 consecutive hikes. Market analysts predict a rate cut in September, but Powell’s comments suggest a more measured approach.
At their June meeting, the Federal Open Market Committee (FOMC) members indicated that only one cut would be made by the end of the year.
Economic Data Influences Fed Decisions
Recent inflation data has shown improvement, with the Fed’s preferred personal consumption expenditures price index at 2.6% in May, down from over 7% in June 2022.
Despite some cooling in the labor market, Powell underscored the economy’s resilience, noting that the U.S. economy continues to expand at a solid pace. The Federal Reserve chief cited robust private domestic demand and steady consumer spending as his reasons.
Personal consumption expenditure index. Source: US Bureau of Economic Analysis
During his testimony, Powell faced pressure from Democratic committee members to lower rates to protect job gains. Committee Chair Sen. Sherrod Brown (D-Ohio) expressed concerns about the potential impact of delayed rate cuts on employment.
Powell, however, reiterated the importance of the Fed’s operational independence in policy decisions.
As Powell navigates the political landscape, the regulator’s emphasis remains on data-driven decisions to guide monetary policy. The Fed’s cautious stance reflects its commitment to balancing inflation control with economic stability.
Powell’s cautious approach has significant implications for financial markets. His insistence on more data before rate cuts highlights the Fed’s vigilance in achieving its inflation target. Investors and analysts will closely monitor upcoming economic reports to gauge the Fed’s next moves.
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