Federal Reserve Chairman Jerome Powell reiterated on Wednesday that he expects interest rates to begin falling this year but was not ready to say when.
In speeches prepared for congressionally mandated appearances on Capitol Hill on Wednesday and Thursday, Powell said policymakers remain concerned about risks from inflation and don’t want to ease up too quickly.
“In considering any changes to the policy rate target range, we will carefully assess incoming data, the evolving outlook, and the balance of risks,” he said. “The Committee expects to become more confident that inflation is sustainably moving toward 2 percent.” Previously, lowering the target range was not appropriate.”
The remarks were taken verbatim from a statement issued by the Federal Open Market Committee after its most recent meeting, which ended on January 31.
During a question-and-answer session with members of the House Financial Services Committee, Powell said he needed to “see more data” before adjusting rates.
“We believe that because of the strength of the economy and labor market and the progress we have made, we can take this step with caution, thoughtfulness and confidence,” he said. “When we reach that level of confidence, we expect we will be Do that at some point. Then we can begin to lift restrictions on our policies.”
Stocks rose during Powell’s speech, with the Dow Jones Industrial Average up more than 250 points at midday. U.S. Treasury yields were mostly lower, with the benchmark 10-year Treasury yield falling about 0.3 percentage point to 4.11%.
Interest rates may reach a peak
Overall, the speech did not break new ground on monetary policy or the Fed’s economic outlook. Comments suggested, however, that officials remain concerned about losing progress in fighting inflation and will make decisions based on incoming data rather than a preset course.
“We believe our policy rates are likely to peak during this tightening cycle. If the economy develops broadly as expected, it may be appropriate to begin easing policy restrictions at some point this year,” Powell said in comments. “But the economic outlook There is uncertainty and we cannot ensure continued progress towards the 2% inflation target.”
He again pointed out that cutting interest rates too quickly could lead to failure in the fight against inflation and may have to raise interest rates further, while waiting too long would pose a danger to economic growth.
The market generally expects that the Federal Reserve will significantly loosen interest rates after raising interest rates 11 times between March 2022 and July 2023, with a total increase of 5.25 percentage points.
As it stands, futures markets are pricing in the first rate cut coming in June, part of four cuts this year totaling a full percentage point. This is slightly more aggressive than the prospect of three interest rate cuts by the Federal Reserve in December.
Inflation eases
Despite facing resistance to rate cuts, Powell noted that the Fed’s actions to achieve its 2% inflation target have not been overturned. the labor market and the broader economy.
“The economy has made great progress over the past year toward achieving these goals,” Powell said. He noted that inflation has “moderate significantly” as “risks to achieving the employment and inflation goals have become better balanced.”
The inflation rate based on the Fed’s preferred indicator is currently 2.4%. If you exclude food and energy from the core data that the Fed prefers to focus on, the inflation rate is 2.8%. The figures reflect “a significant slowdown in prices of goods and services generally since 2022.”
He added: “Longer-term inflation expectations remain well anchored, as reflected in broad surveys of households, businesses and forecasters, as well as measures in financial markets.”
Powell is likely to face a variety of questions during his two-day visit to Capitol Hill, which begins with a hearing before the House Financial Services Committee on Wednesday and ends with a hearing before the Senate Banking Committee on Thursday.
Questions have centered on Powell’s views on inflation and interest rates.
Republicans on the committee also grilled Powell over revisions to bank capital requirements in the so-called Basel III endgame. Powell said he was part of a group in council that had “real concerns, very specific concerns” about the proposals and said withdrawing the plans “is a viable option”. Markets pared some of their early gains on Wednesday after reports that a New York community bank was seeking to raise equity raised fresh concerns about the health of mid-sized U.S. banks.
While the Fed tries to stay out of politics, a presidential election year presents special challenges.
Former President Donald Trump, the likely Republican nominee, was fiercely critical of Powell and his colleagues during his time in office. Some congressional Democrats, led by Massachusetts Sen. Elizabeth Warren, have called on the Fed to lower interest rates as low-income households face pressure to make ends meet.
Rep. Ayanna Pressley, D-Mass., joined Democrats in calling for lower rates. During his tenure, Democrats have frequently criticized Trump for trying to induce the Fed to cut interest rates.
“Housing inflation and housing affordability are the No. 1 issues I hear from voters,” Pressley said. “Families in my district and across the country need relief now. I sincerely hope the Fed listens to them and lowers interest rates.”
Correction: Ayanna Pressley is the Democratic representative from Massachusetts. Earlier versions incorrectly identified status.
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