Federal Reserve Chairman Jerome Powell will testify before the Senate Banking Committee on Tuesday and is expected to examine whether recent signs of slowing inflation and faltering U.S. labor market growth will prompt the Fed to accelerate its plans to cut interest rates.
At the June 11-12 Fed meeting, the median forecast of 19 officials showed only one quarter-point rate cut by the end of the year, but since then inflation data has been weaker than expected and several policymakers, including Powell, have become concerned about slowing labor market growth.
Data last week showed the U.S. economy added a still-healthy 206,000 jobs in June, but data for prior months were revised down. Powell has recently suggested in public comments that the U.S. may have reached a point where further economic weakness will lead to higher unemployment.
The unemployment rate in the United States has been rising, from 3.4% in April 2023 to 4.1% in June this year. At the same time, the monthly CPI rate in May was the same as in April, and analysts expect that the June CPI data released on Thursday may show weak figures again.
“We are very aware that we face two-sided risks,” Powell said last week, capturing the feeling among Fed officials that they can no longer focus solely on lowering inflation but must also consider how to rigorously guard against an excessive slowdown in the economy as they decide how long to maintain the current tight monetary policy.
“We understand that if there is excessive slack in the labor market, the economy could cease to expand,” Powell said.
Tonight, the market's attention is focused on whether Powell will open the door to a rate cut in September. He will also deliver his semi-annual monetary policy testimony to the House Financial Services Committee on Wednesday.
Congressional hearings also typically involve asking Powell a wide range of questions, and given the upcoming November presidential election, the two "interrogations" are likely to be more extensive and intense.
The Fed's next meeting is scheduled for July 30-31, and since its June meeting, investors have increased bets that the Fed will cut interest rates in September.
To achieve that goal, Powell is likely to begin signaling at least the possibility of a rate cut, paving the way for a more explicit change in the upcoming July statement indicating that inflation is approaching the Fed’s 2% target.
Powell's testimony comes after the Fed said in a report to Congress last Friday that inflation has continued to make "modest" progress this year and that there is good reason to believe that price pressures in the housing market, an important factor in the recent persistence of inflation, are now declining. Economists at Pantheon Macroeconomics wrote after the last jobs report:
“Combined with concerns about the labor market, this should make the Fed more concerned about recession risks than fixating on firm inflation.”
Article forwarded from: Jinshi Data
