Fed Chairman Jerome Powell said "more good data" would bolster confidence that inflation is moving toward the Fed's 2% target, with recent data showing "further modest increases" in prices.

In testimony prepared for a Senate hearing, Powell warned that cutting rates too little or too late could put the economy and labor market at risk.

"Rising inflation is not the only risk we face," he said. "Reducing policy constraints too late or too little could unduly weaken economic activity and employment and impede or reverse the inflation process."

Powell's comments suggest the FOMC is unlikely to cut rates when it meets at the end of the month. Treasury yields swung but moved higher on the day, and the S&P 500 held its gains after Powell's testimony.

Markets are pricing in a slightly higher than 70% chance of the Fed's first rate cut in September. They expect two 25 basis point rate cuts in 2024.