Federal Reserve Chair Jerome Powell confirmed to Congress members on Wednesday that future decisions regarding when and how much to lower interest rates will depend solely on economic data. Powell stated that interest rate cuts "will really depend on the path of the economy. Our focus is on maximum employment and price stability, and the incoming data because they affect the outlook, these are the things we will consider."
He added that the Federal Reserve "would like to see more supportive data that makes us more confident that inflation is moving sustainably toward the two percent range before lowering the interest rate." Powell indicated that rate cuts "are likely to be appropriate" later this year "if economic performance evolves as expected."
Powell also warned that continued progress in reducing inflation "is not guaranteed," a reality that prevents Federal Reserve officials from committing to any timeline or pace of interest rate cuts. He noted that while price pressures have broadly eased, there are concerns that the inflation slowdown might take longer.
Powell pointed out that inflation "has significantly declined" after reaching four-decade highs in 2022, yet he remained hesitant to specify a start date for cutting interest rates, which have remained in the range of 5.25% to 5.5% since July, the highest in over 20 years. He mentioned the risks of cutting rates too early, allowing inflation to accelerate, and on the other hand, the danger of maintaining tight monetary policy for too long, potentially harming ongoing economic growth that has driven unemployment down to below four percent over the past two years.
For voters, rising key interest rates mean higher rates on mortgages, credit cards, and small business loans, which arguably have contributed to the current decline in support for Biden, even though this tight monetary policy helps alleviate inflation affecting businesses and households negatively.
