Powell says US economy cooled, Fed needs more data for cuts
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The news: US Federal Reserve Chair Jerome Powell told Congress the US is “no longer an overheated economy” despite the inflation rate remaining above the 2% target, and that "more good data would strengthen" the case for central bank interest rate cuts.
The context: During the first of a two-day congressional testimony, Powell emphasized the risks of both lowering rates too late and too early, warning that premature cuts could stall inflation progress.
The numbers: The Fed's preferred inflation measure rose 2.6% in the year to May, down from 7.1% in June 2022. Although unemployment is still relatively low at 4.1%, it has risen over the past three months.
Investors see a 70% chance of a rate cut in September.
What they said: “If we loosen policy too late or too little, we could hurt economic activity,” Powell said. “If we loosen policy too much or too soon, we could undermine the progress on inflation.”
“The most recent labour market data do send a pretty clear signal that labour market conditions have cooled considerably,” he said, adding the market appeared “fully back at balance.”
During the semi-annual appearance, Powell declined to address politically sensitive questions, including on the potential impact of presidential candidate and former President Donald Trump's proposed tariffs on China, and on Treasury debt management decisions during the Biden administration.
The sources: Federal Reserve, Reuters, Bloomberg
