Economy Remains Robust, Says Jerome Powell in Testimony to Congress, Implies No Immediate Need for Interest Rate Reduction
Federal Reserve Chair Jerome Powell testified before Congress on Tuesday, reaffirming the central bank's cautious stance on interest rate adjustments. In his testimony, Powell emphasised the importance of patience and a data-dependent approach.
Powell's message to Congress was clear: the Fed will not be rushed into rate cuts until economic conditions warrant them. He stated that rate cuts will only come when policymakers have "greater confidence" that inflation is firmly under control.
The Fed Chair's upcoming testimony before the House Financial Services Committee this week is expected to focus on the Federal Reserve's monetary policy, inflation outlook, and economic conditions. Anticipated questions include those about interest rate decisions, economic forecasts, and the Fed's approach to supporting economic growth.
Inflation remains above the Fed's 2% target, according to Powell. He pointed to inflated prices in services and housing as particular challenges. However, Powell also underscored the economy's resilience, stating there is "no rush" to lower rates.
Despite market anticipation for rate cuts in mid-2025, Powell did not commit to a specific timeline. He suggested that premature easing could undermine progress made in stabilising prices.
Some senators urged the Fed to consider easing monetary policy to prevent unnecessary strain on economic activity. However, Powell maintained that the Fed's independence is key to making sound, non-political economic decisions.
Republican and Democratic lawmakers voiced concerns from different angles. Some warned about the risks of over-tightening, while others expressed fears that cutting rates too soon could reignite inflation.
Powell will face further questions on the Fed's strategy for the remainder of 2025 during his testimony before the House Financial Services Committee later this week. Financial markets may need to reassess their expectations in light of Powell's cautious outlook, as they had been pricing in rate cuts as early as mid-year.
In conclusion, Powell's testimony signals that the central bank is in no hurry to change its current policy stance. The Fed remains committed to its data-dependent approach, waiting for clear signs of economic stability and inflation control before making any significant interest rate adjustments.
