Jerome Powell, the chairman of the US Federal Reserve, expressed his concerns about the potential negative impact of keeping interest rates high for extended periods on economic growth. He highlighted the strength of the economy and the labor market, despite some recent cooling, and emphasized the need to bring down inflation to the 2% goal.
Powell’s remarks come ahead of his appearance at a two-day hearing on Capitol Hill, where he is expected to discuss the state of the economy and monetary policy. The Federal Reserve has raised interest rates 11 consecutive times, bringing the overnight borrowing rate to its highest level in 23 years.
While the markets anticipate a rate cut in September, FOMC members have indicated just one cut following their June meeting. Powell and his colleagues have noted some encouraging inflation data after a spike earlier in the year, with inflation now at 2.6% in May.
The Fed’s focus on achieving its 2% inflation target remains a key priority, with Powell emphasizing the need for sustained progress towards this goal. He will face questioning from Senate Banking Committee members and the House Financial Services Committee, where he is expected to address concerns about the potential impact of high-interest rates on job creation and economic growth.
Despite pressure from some committee members to lower rates soon, Powell has reiterated the Fed’s commitment to its mandate and operational independence. He emphasized the importance of maintaining a balanced approach to monetary policy, considering both inflation and economic growth indicators.
Recent data showing a slight increase in the unemployment rate and a slowdown in GDP growth has raised concerns about the overall health of the economy. However, Powell remains optimistic about the solid pace of economic expansion and the resilience of private domestic demand.
As Powell navigates through the hearings and addresses questions from committee members, the focus will be on striking the right balance between supporting economic growth and maintaining price stability. The Fed’s decisions on interest rates in the coming months will be closely watched by market participants and policymakers alike, as they assess the potential impact on job creation and inflation levels.