Fed Chair Powell Signals Possible Interest Rate Cuts Amid Cooling Job Market

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Federal Reserve Chair Jay Powell emphasized on Wednesday that he is increasingly focusing on the cooling job market, signaling to analysts that the central bank may be edging closer to cutting interest rates. Speaking to House lawmakers, Powell noted that while the Fed has long concentrated on curbing inflation, the labor market is now nearing a balanced state. This shift allows the Fed to consider both inflation and employment more equally.

For the past year, the Fed has maintained interest rates at their highest levels in 23 years to combat inflation. However, as inflation begins to moderate, Powell acknowledges the potential hazards of a cooling labor market. Recent data underscored this concern, with a report showing the unemployment rate in June rising to 4.1%, up a tenth of a percent for the second consecutive month. Although this rate remains historically low, it has increased from 3.4% early last year.

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Powell’s remarks have heightened expectations that a rate cut could be imminent, possibly as soon as September. Despite this, Powell refrained from specifying a timeline for potential rate reductions, emphasizing the need for further data on cooling inflation. He expressed cautious optimism about inflation declining toward the Fed’s 2% target but stressed the importance of confirming this trend before making any decisions.

During his semiannual congressional testimony, Powell defended the Fed’s independence amidst an intense election year. House Financial Services Committee Chair Patrick McHenry urged Powell to keep politics out of monetary policy. When questioned by Republican lawmaker Mike Lawler about the potential political implications of a September rate cut, Powell insisted that the central bank remains apolitical. He dismissed the notion of election cycles influencing Fed decisions and affirmed his commitment to his role irrespective of the election outcome.

“This is my fourth presidential election at the Fed, and I can tell you, we come to work the next day and do our jobs,” Powell stated, affirming the central bank’s steadfast focus on its economic mandates.

Powell’s testimony before the House Financial Services Committee followed his appearance before the Senate Banking Committee on Tuesday, where he reiterated similar points about inflation, labor market stability, and the Fed’s independence.