Jerome Powell Affirms Fed’s Intent to Lower Rates Later in the Year

Jerome Powell Affirms Fed's Intent to Lower Rates Later in the Year

Federal Reserve Chair Jerome Powell reaffirmed the Fed’s stance on potential interest rate cuts later this year. This decision comes despite brisk inflation and robust hiring data in January. Powell’s testimony before the House Financial Services Committee underscored the central bank’s cautious approach to monetary policy adjustments. This stance is in response to evolving economic conditions.

More Evidence Needed

According to Ny Times report, Powell emphasized that while inflation and employment figures for January remained strong, the Fed still requires more evidence of sustained inflationary pressures. Only then will they consider rate cuts. He stressed the importance of gaining greater confidence that inflation is moving steadily towards the Fed’s 2% target. This indicates a preference for a data-driven approach to policy decisions.

Data-Driven Approach

“We want to see a little bit more data so that we can become confident,” Jerome Powell stated during his testimony. “We’re not looking for better inflation readings than we’ve had. We’re just looking for more of them.”

Market Expectations Remain Uncertain

Despite market expectations of potential rate cuts in June, Powell’s remarks did little to alter predictions in interest-rate futures markets. Investors continue to anticipate the possibility of rate cuts later this year, although the timing remains uncertain.

Risks and Balances

The Fed faces a delicate balancing act between addressing concerns of economic slowdown and preventing a resurgence of inflation. Powell highlighted the risks of moving too slowly in easing policy, which could lead to economic decline under the weight of higher interest rates. He also pointed out the dangers of easing prematurely, potentially fueling inflationary pressures above the Fed’s target.

Assurance Amidst Uncertainty

In addition to discussing monetary policy, Jerome Powell addressed proposed changes to bank-capital regulations. He indicated that significant revisions to the Basel Endgame plan are forthcoming, acknowledging concerns raised by lawmakers and financial institutions regarding the initial proposal’s impact.

Challenges Ahead

Despite Powell’s assurances, challenges persist for the Fed as it navigates evolving economic dynamics and seeks to strike the right balance in its policy decisions. Market participants will closely monitor upcoming Fed meetings for further insights into the central bank’s outlook and potential policy adjustments.

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