Federal Reserve Chairperson Jerome Powell says he is willing to cut interest rates, but implementation requires more progress on inflation

Federal Reserve Chairperson Jerome Powell said in testimony prepared for a Senate hearing on Tuesday that cutting interest rates too little or too late could put the economy and the labor market at risk, with traders forecasting a slightly higher than 70 percent chance of the Fed cutting rates for the first time in September.

The Federal Reserve appears to be making progress in its desire to bring the economy into balance so that inflation can fall to its 2 per cent target. There is also growing recognition of the two-way risks, and if the data move in that direction, the likelihood of a rate cut in September is expected to increase further.

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The economy remains strong, but some progress has been made

In written testimony on monetary policy submitted to the US Senate by Federal Reserve Chairperson Jerome Powell, he spoke more about two-way risks, and while the Fed was open to the possibility of a rate cut, he stressed the need for data to justify a rate cut.

He said the Quarter 1 data did not give them much confidence that inflation was returning to target, but "recent inflation data have shown some modest further progress and more good data will strengthen our confidence that inflation is continuing to move towards 2%". On the growth front, he admitted that "growth appears to have moderated in the first half of this year, following an impressively strong second half of last year", largely due to "slower but still solid growth in consumer spending". As for the job market, he described it as "strong but not overheated", with the unemployment rate rising due to an increase in labour supply rather than weak job growth.

Two-way risk

The stance of monetary policy has been described as "restrictive", which helps to balance the economy better and puts downward pressure on inflation. He said that "reducing policy constraints too early or too much could hinder" progress on inflation, but at the same time he said that "rising inflation is not the only risk we face." Reducing policy constraints too late or too little could unduly weaken economic activity and employment. "So they seem open to the idea of easing monetary policy, but this has to be supported by data.

Institutional Reviews

Yes.Forex PlatformAnalysts believe that prepared testimony from Federal Reserve Chairperson Jerome Powell has been released, and at first glance, the tone of the testimony looks quite balanced, providing some clues to both long and short positions. But whether this will actually affect prices is uncertain. He pointed out the risks of being too aggressive and not aggressive enough on easing.

The "Fed Messenger" Nick Timiraos article says that in the second half of last year, despite strong spending and hiring, price growth slowed so quickly that officials were surprised, prompting them to shift their focus from how high to raise interest rates to how long it will take to cut them. Powell, who last appeared before members of Congress in early March, hinted that the Fed could cut rates by June. Since then, there has been a reversal in inflation, derailing any such plans. Mr. Powell said today that recent inflation data "show some modest further progress and that more good data will strengthen our confidence that inflation is on a sustained path towards 2 per cent". The sharp swings in inflation have left the Federal Reserve in an awkward wait-and-see situation, with policymakers either waiting for months of compelling moderate inflation data or evidence of a significant slowdown in employment and economic activity before cutting interest rates.