The scenario for reducing interest rates looks more promising than ever, the Federal Reserve Chairman has just told members of Congress.
But there needs to be more evidence of a slowdown in inflation for that to happen, Jerome Powell said.
Appearing before the House Committee on Financial Services, Powell presented a mostly positive take on the current national economy, noting that even though the labor market remains tight, “supply and demand conditions have continued to come into better balance.”
Overall, the nation has seen an increase of roughly 239,000 jobs a month since last spring, with an average unemployment rate at 3.7% that “has remained near historic lows.”
The best part of that growth comes in the age of the new workers steadily moving to replace the big and retiring Baby Boom generation. Growth has largely been seen, said Powell, among those aged 25 to 54 years of age, as well as through immigration.
Things are also looking better on the inflation front, remarked the Fed Chairman, although the pace remains above the Fed’s desired goal of 2%. In fact, overall personal consumption expenditure prices have risen by an average of 2.4% since early 2023.
But for all of that, continued Powell, “longer-term inflation expectations appear to have remained well anchored, as reflected by a wide range of surveys of households, businesses, and forecasters, as well as measures from financial markets.”
As for the future of Fed rates, Powell candidly remarked: “We believe that our policy rate is likely at its peak for this tightening cycle.”
When and by how much the Fed rates will be lessened, however, remains anyone’s guess. “We will carefully assess the incoming data, the evolving outlook, and the balance of risks.”
Powell’s resistance to spelling out a clearer Fed rate picture frustrated some. Said the publication Barron’s: the chairman “provided no additional details on timing, or what conditions need to be met to reassure central bank policymakers that the downward inflation trend will hold.”
Remarked the Wall Street Journal: “If the Fed somehow lands this plane, don’t expect the captain to make an announcement.”
By Garry Boulard
