Federal Reserve Chair Jerome Powell appeared before the Senate Banking Committee on Tuesday, emphasizing that continued positive economic data is crucial for the central bank to confidently move towards its 2 percent inflation target, which could potentially lead to an interest rate cut.
In his prepared remarks, Powell stated, "The Committee has indicated that we do not foresee it being appropriate to reduce the target range for the federal funds rate until we have greater confidence that inflation is moving sustainably toward 2 percent."
Powell further elaborated, "The incoming data for the first quarter of this year did not bolster our confidence to that end. However, the most recent inflation readings have shown some modest further progress, and additional positive data would heighten our confidence that inflation is advancing sustainably toward 2 percent."
Powell's comments coincided with the release of a Commerce Department report late last month, which showed that the annual growth rate of core consumer prices—excluding food and energy—slowed to 2.6 percent in May from 2.8 percent in April.
The Labor Department is set to release its June consumer price inflation report on Thursday. Economists predict that the annual rate of consumer price growth will decelerate to 3.1 percent in June from 3.3 percent in May, with the core consumer price growth holding steady at 3.4 percent.
Powell also cautioned against the risk of maintaining high interest rates for too long, which could impede economic growth. "Considering the advancements made in reducing inflation and cooling the labor market over the past two years, high inflation is not the only threat we face," Powell remarked. "If policy restraint is reduced too late or insufficiently, it could significantly weaken economic activity and employment."
Discussing the current state of the U.S. economy, Powell noted that recent indicators point to continued solid economic expansion. "Gross domestic product growth appears to have moderated in the first half of this year, following remarkable strength in the latter half of last year," he said. "Private domestic demand remains robust, with consumer spending rising at a slower but still-solid pace."
He concluded by observing the labor market, "A comprehensive set of indicators suggests that labor market conditions have returned to approximately where they were on the eve of the pandemic: strong, but not overheated."
