Jerome Powell hints at rate cuts: “The US economy is no longer overheated”

Jerome Powell hints at rate cuts: “The US economy is no longer overheated”
Jerome Powell hints at rate cuts: “The US economy is no longer overheated”

He Federal Reserve Chairman Jerome Powell, He spoke this Tuesday, July 9, before the United States Congress and assured that the economy is no longer too hot and that the central bank must weigh the risks on both sides of the economic outlook.

“This It is no longer an overheated economy“Powell told a congressional panel, adding that “we are well aware that we face risks from two sides and have done so for some time.” In that regard, he said they must be carefully balanced on the monetary policy front.

A Friday jobs report showed a still-solid 206,000 jobs added in June, but with a slowing monthly trend and a rising unemployment rate now at 4.1%.

Powell called it “still a low level,” but also noted that ““In light of the progress made in both reducing inflation and cooling the labor market over the past two years, elevated inflation is not the only risk we face.”

Leaving monetary policy too tight for too long “could unduly weaken economic activity and employment,” Powell said, undermining a period of economic growth that he said “remains strong” with “robust” private demand, improved overall supply conditions and a “recovery in residential investment.”

Powell said that The labor market appears to be “fully balanced again”“, noting that “as we get further on inflation and the labor market remains strong,” rate cuts will make sense at some point.

The United States is “no longer an overheated economy” with a labor market that has “cooled considerably” from the extremes of the pandemic era and is in many ways back to where it was before the health crisis, Federal Reserve Chairman Jerome Powell said.

Powell’s view on the US economy

Powell told senators that Inflation had been improving in recent months and “more good data would strengthen” the arguments for looser monetary policy. The Fed has kept its policy rate in the range of 5.25% to 5.5% since July 2023.

“After a lack of progress toward our 2% inflation objective earlier this year, the most recent monthly readings have shown further modest gains,” Powell said. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he added.

Speaking to Congress, Powell also suggested that The case for interest rate cuts is becoming strongerHe said the Fed can no longer focus solely on inflation. “The labor market appears to be fully balanced again,” he said.

However, he stated that “Today I will not send any signals about the timing of any future action.“on interest rates, as Democrats grilled him about the risks to the labor market and Republicans questioned him about the pain faced by households from inflation that remains above the central bank’s 2% target.

However, Analysts still see Powell at least opening the door to a rate cut as early as September“Their emphasis has shifted a bit toward a balance of risks within the Fed’s mandate,” said Christopher Hodge, chief U.S. economist at Natixis in New York. “The Fed needs to get ahead of labor market weakness. … It looks like the groundwork is being laid for a turnaround in September.”

Investors’ expectations

Powell’s semi-annual appearance in the Senate This will be followed by a hearing in the House of Representatives scheduled for Wednesday.

Following Powell’s comments, investors continued to see a roughly 70% chance that the Fed will cut rates at its September meeting, a view that would likely require changes to the policy statement to be released after the July 30-31 meeting.

“They’re starting to prepare for a rate cut,” said Brian Jacobsen, chief economist at Anexo Wealth Management in Brookfield Wisconsin. “They see risks if they don’t cut soon enough. They used to focus solely on inflation.”

Source: Ambito

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