Steve Matthews | Bloomberg News (TNS)
Here are the key takeaways from Federal Reserve Chair Jerome Powell’s testimony before the Senate Banking Committee in Washington Tuesday:
— Powell left the Fed’s options open on when the central bank will cut interest rates, which markets are pricing in as likely for September.
He told senators he doesn’t expect the next move will be a hike but declined to give any timetable for cuts. “I’m not going to be sending any signals about the timing of future actions.”
— The chair stressed that there are two-sided risks for policy: moving too soon or moving too late. By repeatedly highlighting the risk to both sides of the Fed’s mandates — full employment and price stability — Powell kept a September rate cut on the table, while not fully committing to it. The Fed will make its calls “meeting by meeting,” he said.
— Recent inflation data have shown modest further progress, he said, and more good data would strengthen the Fed’s confidence in inflation returning to 2%, a condition for cutting rates.
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Unexpected weakness in the labor market could also prompt a cut, Powell added. While the U.S. economy is slowing and the labor market is cooling, the unemployment rate remains low by historical standards and the U.S. economy is the best globally, Powell said.
— Asked separately about a plan to boost capital requirements for the biggest banks, Powell said the Fed and other regulators are close to finalizing changes to the proposal released in July 2023 and would likely need to seek public comment on the revised plan before finalizing it. Powell said it “may be right” that we end up with a final rule in the beginning of 2025.
— Reaction in markets was muted as Powell tried to not give any near-term signals on policy. Stocks hovered near all-time highs as Wall Street viewed the Fed chief’s economic remarks as balanced. Treasuries struggled to gain traction, though, as some traders were positioned for stronger policy-easing signals.
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