Fed still in no rush to lower rates, Powell tells US Congress
The central bank chief describes the labour market as ‘broadly in balance’ and ‘not a source of significant inflationary pressures’
FEDERAL Reserve chair Jerome Powell said that the central bank does not need to rush to adjust interest rates, again signalling that officials will be patient before lowering borrowing costs further.
“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 said in remarks prepared for testimony on Tuesday (Feb 11) before the Senate Banking committee.
“We know that reducing policy restraint too fast or too much could hinder progress on inflation,” he added. “At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
Fed policymakers left the central bank’s key policy rate unchanged following their January meeting, after three consecutive interest-rate cuts in the final months of 2024. Powell and other officials have signalled they are likely to hold rates steady until they see more progress on lowering inflation, and as they await further details on President Donald Trump’s economic-policy plans.
The labour market remains sound, which officials have said also allows them to be patient in considering further interest-rate reductions. Powell on Tuesday described the labour market as “broadly in balance” and “not a source of significant inflationary pressures”.
The most recent employment data painted a picture of a slowing, but solid labour market. Employers added 143,000 jobs in January and the unemployment rate ticked down to 4 per cent. Inflation, as measured by the Fed’s preferred gauge, remained above target at 2.6 per cent at the end of 2024. Powell said that inflation is “somewhat elevated” above the central bank’s 2 per cent goal.
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In his testimony, Powell added that inflation expectations “appear to remain well-anchored”.
Trump’s policy proposals, meanwhile, have added a layer of uncertainty to the economic outlook and will likely prompt a line of questioning for the the Fed chair. The Trump administration has ramped up tariffs on goods from China, threatened additional duties on Canada and Mexico and on all imports of steel and aluminium, and launched a promised immigration crackdown.
Those measures could put upward pressure on inflation, weigh on economic growth or constrict the number of available workers, all of which would likely have policy implications for the Fed. Some Fed officials have begun to factor in Trump’s policies into their forecasts for how the economy will evolve, while others have said they have not yet seen enough details on the plans to do so.
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“We are attentive to the risks to both sides of our dual mandate, and policy is well-positioned to deal with the risks and uncertainties that we face,” Powell noted.
Lawmakers will likely also probe Powell on financial regulation, as Trump advances a deregulatory push across the federal government. That push has already played a role in the coming resignation of Fed governor Michael Barr from this role as vice-chair for supervision. Though he will stay on as a governor, Barr has said he will step down from the regulatory post at the end of February, in part to avoid a clash with the new administration.
Powell could also be pressed on whether the central bank’s apparent compliance with Trump’s executive order ending federal diversity, equity and inclusion efforts runs afoul of legal requirements under the Dodd-Frank Act of 2010.
Powell was also set to appear before the House Financial Services Committee on Wednesday.
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