Fed Chairman: The Case for Rate Cuts Is Getting Stronger

On July 9, during a hearing before the Senate, Federal Reserve Chairman Jerome Powell assessed that the US economy is no longer overheating, with the job market cooling and many aspects returning to pre-COVID-19 pandemic conditions, making the possibility of cutting interest rates stronger.

After failing to make progress on the 2% inflation target earlier this year, the most recent monthly data has shown modest progress, Mr. Powell said.

The Fed chief said better data would bolster confidence that inflation is heading toward 2% on a sustainable basis.

The Fed chair also said the labor market appeared to be fully back in balance. The Labor Department’s July 5 jobs report showed U.S. job growth slowing and the unemployment rate rising to 4.1 percent, which Treasury Secretary Janet Yellen said would help inflation continue to decline.

Mr. Powell called the unemployment rate "still low," but also noted that with the progress made in reducing inflation and cooling the labor market over the past two years, rising inflation is not the only risk the United States faces.

He argued that too tight a policy for too long could undermine economic activity and employment too much.

The central bank chief also assessed that US economic growth "remains solid," with "strong" private demand, improved overall supply conditions and a "recovery" in residential investment.

Earlier, in a report to Congress released on July 5, the Fed noted that there was good reason to believe that price pressures were easing, particularly in the housing market, a major area of ​​recent persistent inflation.

Following Chairman Jerome Powell's comments, investors continue to bet on a nearly 70% chance the Fed will cut interest rates by September 2024.

Mr. Powell is expected to continue his testimony at the US House of Representatives on July 10.