- Powell reiterated that while rates are likely at their peak, the Fed is not ready to start cutting rates until they have greater confidence inflation is moving sustainably toward 2%.
- Though inflation has eased substantially, the Fed wants to be confident it is moving down before easing policy. They don’t want to ease up too quickly.
- Powell noted risks to the Fed’s goals have become more balanced but inflation expectations remain anchored. He faces questions on rates and policy ahead of the election.
Federal Reserve Chair Jerome Powell reiterated on Wednesday that he expects interest rates to start coming down this year but is not ready yet to say when. In testimony before Congress, Powell said the Fed wants to be confident inflation is moving down before easing policy.
Powell Sticks to Script on Rates
In prepared remarks for appearances on Capitol Hill, Powell said policymakers remain attentive to the risks that inflation poses and don’t want to ease up too quickly. “The Committee does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell said, echoing the Fed’s latest policy statement.
Rates Likely at Peak
Powell noted that policy is likely at its peak for this cycle. “If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” he said. But Powell cautioned against moving too quickly or too slowly on rates.
Inflation Easing, Risks Balancing
Despite holding off on rate cuts for now, Powell said inflation has eased substantially and risks to the Fed’s goals have become more balanced. He noted longer-term inflation expectations remain anchored. The Fed’s preferred inflation gauge slowed to 2.4% in January from higher levels last year.
Challenges Ahead
In his testimony, Powell is likely to face questions on inflation, rates and bank regulation. With the presidential election approaching, he may also field political questions, as Democrats urge rate cuts while Republicans criticize Fed policy.
Conclusion
Powell’s remarks indicate the Fed remains data-dependent and in no hurry to pivot on policy. While rate cuts could come later this year, officials first want confidence inflation is moderating sustainably. The Fed chief continues walking a tightrope between inflation risks and growth concerns.
