Federal Reserve Chairman Jerome Powell warned Congress on Tuesday that keeping interest rates high for too long threatens economic growth and jobs. “Higher inflation is not the only risk we face,” Powell said.
At a congressional hearing, Chairman Powell suggested that combating inflation remains a priority, but that Fed policymakers are focused on when to cut rates.
The U.S. economy is “no longer overheating,” Powell said, adding that the job market has “cooled off significantly” from its surge after the initial damage caused by the pandemic.
“We know that reducing policy restraints too quickly or too much could stall or reverse the progress we've seen on inflation,” he told the Senate Banking, Housing and Urban Affairs Committee. “At the same time, given the progress we've made over the past two years both in containing inflation and cooling the labor market, higher inflation is not the only risk we face.”
“Reducing policy restraints too late or not enough could weaken economic activity and employment too much.”
After raising interest rates to their highest level in 20 years in an attempt to curb inflation, the U.S. central bank is now considering its next steps.
While inflation has retreated from its highest level in a generation, it remains stubbornly above Fed officials' 2 percent target amid ongoing concerns about the cost of living across the country.
Fed officials are scheduled to next meet at the end of July to set interest rates. As of last month, most Fed policymakers expect one or two rate cuts this year, according to economic projections released by the Fed.
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Powell expressed optimism about price increases, saying, “While progress toward our 2 percent inflation objective was lacking early this year, recent monthly data suggest further, moderate progress.”
Powell added that this gradual progress would give the Fed “better data” to strengthen its confidence that “inflation is moving sustainably toward our 2 percent objective.”