US economy no longer overheated, Fed’s Powell tells Congress
The US is “no longer an overheated economy” with a job market that has “cooled considerably” from its pandemic-era extremes and in many ways is back where it was before the health crisis, Fed Chair Jerome Powell said in remarks to Congress that suggested the case for interest rate cuts is becoming stronger.
“We are well aware that we now face two-sided risks,” and can no longer focus solely on inflation that nevertheless still “remains above” the central bank’s 2 per cent target, Powell told the Senate Banking committee on Tuesday. “The labour market appears to be fully back in balance.”
Powell in his prepared remarks told Senators that inflation had been improving in recent months and that “more good data would strengthen” the case for looser monetary policy.
The Fed has kept its policy rate in the 5.25 per cent to 5.5 per cent range since July 2023.
Powell’s comments appeared to show increasing faith that inflation will return to the Fed’s target, and contrasted the lack of progress on inflation in the first months of the year to recent improvement that has helped build the Fed’s confidence that price pressures will continue to diminish.
“After a lack of progress towards our 2 per cent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress,” Powell said in remarks to the Senate Banking Committee. “More good data would strengthen our confidence that inflation is moving sustainably towards 2 per cent.”
The Fed receives consumer price information for the month of June on Thursday.
A jobs report on Friday showed a still-solid 206,000 jobs added in June, but with a slowing monthly trend and a rising unemployment rate now at 4.1 per cent.
Powell called that a “still low level,” but also noted that “in light of the progress made both in lowering inflation and in cooling the labour market over the past two years, elevated inflation is not the only risk we face.”