US Federal Reserve Chairman Jerome Powell has suggested that the central bank is focusing more on the timing of interest rate cuts after inflation has begun to decline again and the labor market shows signs of slowing down. cooling effect.

“High inflation is not the only risk we face,” Powell said in remarks prepared for Tuesday morning before the Senate Banking Committee.

Powell said the economy has made “significant progress” in reducing inflation with the job market the same as before the pandemic—“strong, but not overheating.” However, he did not clarify when the central bank might start reducing interest rates. “We continue to make decisions with each meeting,” he said.

Economic forecasts released last month showed most Fed officials expect to cut interest rates once or twice this year if inflation slows and economic growth remains solid but unimpressive. Their next meeting is on July 30-31. Markets are focused on whether officials at that meeting will give stronger hints that they could cut interest rates at the next meeting. follow in September or not.

Fed officials are trying to balance the two risks. One is that they moved too slowly to loosen policy and the economy collapsed under the pressure of higher interest rates, causing unemployment to rise sharply. The remaining risk is that low interest rates stimulate economic activity and allow inflation to stabilize at levels above their target.

Inflation fell to 2.6% in May, according to the Fed's preferred metric, down from 4% a year ago but still above the Fed's 2% target.

The economy continues to add more than 200,000 jobs per month, on average, this year. But the unemployment rate rose slightly—to 4.1% in June from 3.7% in December—as an increase in job seekers led to longer periods of unemployment.

The Fed raised interest rates at the fastest pace in 40 years in 2022 and 2023 to combat inflation that has also risen to its highest level in four decades. Officials have kept their benchmark interest rate between 5.25% and 5.5% since last July.

Officials were surprised in the second half of last year by the rapid pace of price declines despite strong spending and hiring, causing them to shift their attention from how high to raise interest rates to how long to wait before cutting them. reduce them. When Powell appeared before lawmakers in early March, he hinted that the Fed might cut interest rates in June. Inflation turned around later, derailing that plan.

Recent inflation figures “have shown some modest progress, and better data will strengthen our confidence that inflation is moving sustainably toward 2%,” Powell said on Tuesday. .

Fluctuating inflation has left the Fed in an awkward position, where policymakers are looking for several more months of convincing inflation readings or evidence of a significant slowdown in hiring. and economic activity before interest rate cuts.

As Bitcoin Magazine reported recently, analysts at Citi have predicted that the Fed could cut interest rates by 200 basis points over the next eight meetings until the summer of 2025 as the US economy cools . Citing new signs of a slowing economy and rising unemployment, the bank forecasts that the Fed will cut interest rates by 25 basis points eight times, starting in September and lasting through July. 2025. This would lower benchmark interest rates from the current 5.25%-5.5% range to 3.25%-3.5%, a level Citi expects to hold throughout 2025.

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