Federal Reserve chair signals rate cuts depend on more data

Jerome Powell asserts the Fed's cautious stance on rate cuts, eyeing more data before easing monetary policy

Federal Reserve chair signals rate cuts depend on more data

Federal Reserve Chair Jerome Powell on Wednesday reinforced the position that the Federal Reserve is not yet ready to begin cutting interest rates, even though there is an expectation for rates to start coming down within the year.

During his appearances on Capitol Hill, Powell delivered prepared remarks emphasizing the need for caution in monetary policy adjustments, as CNBC reported.

“In considering any adjustments to the target range for the policy rate, we will carefully assess the incoming data, the evolving outlook, and the balance of risks,” Powell stated, mirroring language from the Federal Open Market Committee’s statement at the end of its January 31 meeting.

He further clarified, “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.”

During a question-and-answer session with the House Financial Services Committee, Powell expressed the necessity of additional data before making a move on rates.

“We think because of the strength in the economy and the strength in the labor market and the progress we’ve made, we can approach that step carefully and thoughtfully and with greater confidence,” he remarked, signaling a cautious yet optimistic outlook for potential policy easing later in the year.

As Powell spoke, the stock market responded positively, with the Dow Jones Industrial Average seeing a significant uptick. Concurrently, Treasury yields mostly decreased, highlighting the market's reaction to Powell's commentary.

Powell's speech did not venture into new territory regarding the Federal Reserve's monetary policy or economic forecasts. However, it reaffirmed the Fed's vigilance against prematurely loosening its grip on inflation.

“We believe that our policy rate is likely at its peak for this tightening 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 explained.

Yet, he also cautioned against the uncertainties of the economic outlook and the ongoing challenge of achieving the Fed’s 2 percent inflation objective.

In his remarks, Powell acknowledged the substantial progress made toward tempering inflation without destabilizing the labor market or the broader economy.

He pointed to the Fed’s preferred gauge of inflation, currently running at a 2.4 percent annual rate, as evidence of “a notable slowing from 2022 that was widespread across both goods and services prices.”

Looking ahead to his Capitol Hill visit's remainder, Powell was expected to field a range of questions, particularly concerning his perspective on inflation and interest rates.

This included scrutiny from Republicans on the committee regarding the Basel III Endgame revisions to bank capital requirements, to which Powell revealed “real concerns, very specific concerns” and acknowledged that withdrawing the plan is “a live option.”

Powell’s engagements come at a time of heightened sensitivity, given the presidential election year's backdrop. With pressures from both sides of the political spectrum, Powell and the Federal Reserve find themselves at the center of a broader debate on economic policy, reflecting the diverse and often conflicting interests that shape the conversation around interest rates and monetary policy.