Powell says Fed doesn’t need to rush on rate cuts
Summary
The Fed chair is expected to deliver a simple message to lawmakers: Because the economy is doing well, the Fed can take its time to decide when and whether to lower interest rates.
WASHINGTON—Federal Reserve Chair Jerome Powell delivered a simple message to Congress to start two days of testimony on Tuesday: Because the economy is doing well, the Fed can take its time to decide when and whether to lower interest rates.
The central bank cut interest rates at its last three meetings of 2024 by a full percentage point after holding rates near a two-decade high. “With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance," Powell was due to tell lawmakers in the Senate Banking Committee, according to prepared remarks.
The labor market appears to have stabilized after job growth slowed last summer. The unemployment rate drifted up from 3.7% in January 2024 to 4.2% last July, but it has since leveled off. It ticked down to 4.0% last month.
Powell defended last year’s rate cuts as a needed recalibration of its policy stance to account for improvement on inflation and cooler labor market conditions. The Fed held rates steady at its meeting last month. Officials have suggested they will maintain that wait-and-see posture at least through their next meeting in one month.
Looking ahead, he said the Fed could keep rates on hold for much longer if inflation doesn’t continue to move down to its target and the economy remains solid. Powell said the Fed could cut rates if the labor market weakened unexpectedly or inflation made faster-than-expected progress declining to its 2% goal.
Fed officials have been heartened by recent inflation readings that suggest price pressures have continued to run at mild levels that could soon put them much closer to their target.
But they are anxious over how potential policy changes by the Trump administration, including a much more aggressive use of tariffs compared with his first term, could raise the price of imported goods in ways that derail the last stages of their inflation fight.
The Fed began raising rates rapidly in 2022 to combat inflation that hit a four-decade high. Officials reeled off a sequence of jumbo rate increases that fanned fears of a recession, which many economists said would be needed to bring inflation down.
But the economy proved to be far more resilient. It has so far shrugged off the effects of those tighter policies, bolstered by strong consumer spending, lofty asset prices, and the aftereffects of aggressive stimulus to support the economy in 2020 and 2021. Inflation as measured by the Fed’s preferred gauge fell at 2.6% at the end of last year, down from a peak of 7.2% in 2022.
Write to Nick Timiraos at Nick.Timiraos@wsj.com
