Federal Reserve Chairman Jerome Powell reinforced the message that the Fed is increasingly focused on a slowing labor market, not just on taming inflation. The shift suggests the Fed is likely to begin cutting interest rates soon.
WASHINGTON — Federal Reserve Chairman Jerome Powell reiterated Wednesday that the Fed is increasingly focused on a slowing labor market, not just on taming inflation. The shift suggests the Fed is likely to start cutting interest rates soon.
“We’re not just a central bank that pursues inflation targets,” Powell told the House Financial Services Committee on the second of two days of his semiannual testimony before Congress. “We also have a jobs mandate.”
On Tuesday, when Powell addressed the Senate Banking CommitteeHe suggested that the Fed had made “significant progress” toward its goal of worst inflation peak in four decades, noting that cutting interest rates too late or too little could unnecessarily weaken economic activity and employment.
Congress has given the Fed a dual mandate: to keep prices stable and maximize employment.
“For a long time,” Powell said Wednesday, “we’ve had to focus on the inflation mandate.” As the economy roared out of the pandemic recession, inflation hit a 40-year high in mid-2022. The Fed responded by raising its benchmark interest rate 11 times in 2022 and 2023. Inflation has fallen from a peak of 9.1% to 3.3%.
The economy and labor market have continued to expand despite widespread predictions that much higher borrowing costs would trigger a recession. Still, growth has weakened this year. From April through June, U.S. employers added an average of 177,000 jobs per month, the slowest three-month hiring pace since January 2021.
Powell told the House of Representatives on Wednesday that the Fed likely will not wait for inflation to reach its 2% target before cutting rates, to avoid damaging the economy.
Most economists have said they expect the Fed’s first rate cut to come in September. Powell declined this week to say when he envisions the first cut.
