The Chairman of the Federal Reserve, the central bank of the United States of America, Jerome Powell, expressed concern on Tuesday 09/07 that keeping interest rates too high for too long could harm economic growth.
Setting the scene for a two-day appearance on Capitol Hill this week, the central bank leader said that the US economy remains strong, as does the labour market, despite some recent cooling. Powell cited some reduction in inflation, which he said policymakers remain resolute in bringing down to their 2 per cent target.
“At the same time, in light of the progress made in both reducing inflation and cooling the labour market over the past two years, high inflation is not the only risk we face,” he said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.” He added.
Powell’s comment coincides with the approach of the one-year anniversary of the last time the Federal Open Market Committee (FOMC) raised benchmark interest rates.
The Fed’s overnight lending rate is currently in a range of 5.25-5.50 per cent, the highest level in some 23 years, the product of 11 consecutive increases after inflation reached its highest level since the early 1980s.
The markets expect the Fed to start cutting rates in September and probably continue with another reduction of a quarter of a percentage point by the end of the year. The FOMC members at their June meeting, however, indicated only one cut.
‘Strengthening our confidence’
In recent days, Powell and his peers have indicated that inflation data has been somewhat encouraging after a surprise jump at the start of the year. Inflation, as judged by the Fed’s favoured personal consumption expenditure price index, was at 2.6% in May, after peaking above 7% in June 2022.
“After a lack of progress toward our 2 per cent inflation target earlier this year, the most recent monthly readings showed further modest progress,” Powell said. “More good data would strengthen our confidence that inflation is moving sustainably toward 2 per cent.”
The statement is part of Congress’ mandatory six-monthly updates on monetary policy. After making the comments, Powell will face questioning from members of the Senate Banking Committee on Tuesday, and then from the House Financial Services Committee on Wednesday.
Semanário Económico
