Fed Chair Jerome Powell doubled down on Wednesday that the central bank will cut its key interest rate this year but says he first wants to see more evidence that inflation is falling sustainably back to the Fed’s 2% target.
Powell’s comments to a House committee largely echoed those he made at a news conference at the end of January. Since then, however, government reports have shown that inflation picked up from December to January, and hiring accelerated. Those signs suggested that the economy remains hot and that the process of further slowing inflation will likely be uneven from month to month.
But Powell did not express concern about the inflation data. Instead, he notes that according to the Fed’s preferred gauge, inflation “has eased notably over the past year” even though it remains above the central bank’s target.
On the first of his two days of semiannual testimony to Congress, Powell also suggested that the Fed faces two risks: Cutting rates too soon—which could “result in a reversal of progress” in reducing inflation—or cutting them “too late or too little,” which could weaken the economy and hiring. The effort to balance those two risks marks a shift from early last year, when the Fed was still rapidly raising its benchmark rate to combat high inflation.
