In his first of two days of testimony before Congress, Federal Reserve Board Chairman Jerome Powell reiterated the careful approach on monetary policy in his address to the House Financial Services Committee on Tuesday.
In his semiannual address to Congress, Powell told House lawmakers that the Federal Open Market Committee is in no rush to lower rates.
“For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance,” Powell said in his prepared remarks.
On inflation, Powell said that while it has eased significantly from its 2022 highs, it remains “somewhat elevated” above its 2% goal. He added that increases in tariffs are likely to push up prices and potentially be a drag on economic activity.
The economy started to see that in May as the Consumer Price Index rose to 2.4%. Also, Powell indicated in his address that based on estimates, personal consumption expenditures () inflation rose 2.3% year-over-year in May, which would be up from 2.1% last month. , excluding the food and energy prices, increased 2.6% in May, up from 2.5% the previous month. The official PCE results are due to come out on Friday.
“Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2% inflation goal,” he said.
Cuts “Sooner” Than Later?
In the Q&A session that followed his prepared remarks, Powell gave some glimmer of hope that cuts might be on the near horizon.
“I would say this, I think if it turns out that inflation pressures do remain contained then we will get to a place where we cut rates sooner rather than later, but I wouldn’t point to a particular meeting,” Powell said.
The Fed chair added that conditions in the labor market are broadly in balance and consistent with maximum employment. He added that the labor market is not a source of significant inflationary pressures.
Powell also stated that despite “elevated uncertainty,” the U.S. economy is in a “solid position.” However, consumer sentiment surveys show concerns about the economy, mostly due to trade policy. It remains to be seen, he said, how this might impact spending and investment.
The Fed chair added that the effects of tariffs going forward will depend on where they settle.
“The effects on inflation could be short lived — reflecting a one-time shift in the price level. It is also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and, ultimately, on keeping longer-term inflation expectations well anchored,” Powell stated.
Being Careful With the Risks
In the Q & A period, Powell also discussed how the Fed is treading carefully on rates.
“Credibility is hard-won on inflation and something we need to constantly tend,” Powell said. “And that’s what we are doing with our current policy, just being careful with potential inflation risks. We haven’t overreacted, in fact, we haven’t reacted at all, but we’re being a little bit careful.”
Powell addresses the Senate Banking Committee on Wednesday morning. On Monday in a speech in Prague, Fed Governor Michelle Bowman indicated that rates cuts are on the table for her in July, if current trends persist.