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Just like students when a teacher hints at what’s on an upcoming exam, economy watchers latched onto every soundbite of Jay Powell’s biannual testimony to Capitol Hill lawmakers yesterday.
Though the Fed chair neglected to directly address interest rate plans:
- He noted the cooling job market and recent progress in lowering inflation, adding that price growth would need to continue slowing for the Fed to issue a cut.
- Powell explained the Fed’s conundrum: Keeping rates elevated for too long could hamper the economy, but cutting too quickly could reignite inflation.
His words reinforced analysts’ expectations that rates will be slashed sometime this year, with investors estimating a 73% chance of a rate cut by September, according to CME Group.
Politics vs. Powell
Any Fed moves in the coming months carry more political weight than usual due to the presidential election in November. Democratic Senator Sherrod Brown, who chairs the Senate Banking Committee that heard Powell’s testimony, urged him to consider how high interest rates push up housing costs and jeopardize the job market. Meanwhile, his Republican colleague Senator Kevin Cramer said a rate cut before the election would “be a bad perception.”
Rates aside…Powell told Senators that the Fed is making progress on revising controversial rules proposed by regulators that would require big banks to keep a larger financial cushion, devised as part of an international agreement to prevent crises.