The chairman of the US Federal Reserve has called for economic growth (Fed), Jerome Powell expressing concern if interest rates remain at too high levels for too long.
The Fed chief said the economy remains strong, as does the labor market, despite the recent slowdown. Powell pointed to the softening of inflation, which he said policymakers remain determined to reduce from their 2 percent target.
“At the same time, in light of the progress made over the past two years in both reducing inflation and slowing the labor market, higher inflation is not the only risk we face,” he said in a draft of his prepared speech. Ahead of his two-day deposition in the Capitol.
“Easing too slow or too little restrictive policies could unduly dampen economic activity and employment.”
The central banker’s comments almost coincide with the upcoming one-year anniversary of when the Fed last raised benchmark interest rates.
The Fed’s overnight lending rate is currently in the range of 5.25%-5.50%, the highest level in 23 years, as a result of 11 consecutive increases since the highest inflation rate since the early 1980s.
Markets expect the Fed to begin cutting interest rates in September and possibly another quarter percentage point cut by the end of the year. However, FOMC members indicated only one cut at the June meeting.
“After a lack of progress towards our 2% inflation target earlier this year, the latest monthly readings indicated modest further progress,” Powell said. “Better data will reinforce our belief that inflation is moving steadily towards 2%.”
The announcement is part of the semiannual monetary policy updates mandated by Congress. After delivering the remarks, Powell will face questions from members of the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.