The US Federal Reserve is facing challenges with a cooling job market and persistent high prices, according to Chairman Jerome Powell’s recent testimony to Congress. This shift indicates a move towards potential interest rate cuts, shifting away from the focus on inflation in the past two years.
Powell acknowledged progress in combating the high inflation levels of the past, but highlighted that the current inflation rate still exceeds the central bank’s target. He emphasized the risks of cutting interest rates too late, which could weaken economic activity and employment.
Recent inflation reports have not been promising, and Powell’s greater focus on the risks to the economy has been welcomed by experts. Chief economist Gregory Daco suggests that the Fed should cut its benchmark rate in July to prevent potential layoffs due to a slowing economy.
Slowing job market
Powell mentioned a considerable cooling of the job market and moderated economic growth, despite solid hiring in June. The unemployment rate has risen for the third consecutive month. The Fed chair hinted at a future rate cut, likely at the September meeting.
An independent institution
Powell also emphasized the Fed’s independence and the need for a long-term perspective on interest rate policy. As the government prepares for the upcoming election, the Fed’s role in insulating the economy from political pressures is crucial.
With signs of cooling inflation and a slowing job market, calls for a rate cut are growing. Democratic senators have urged Powell to initiate reductions, highlighting the need for proactive measures to support the economy.