Fed boss tells Congress more 'good data' is required before a rate cut happens

A news conference with Federal Reserve Chair Jerome Powell appears on a monitor on the floor at the New York Stock Exchange in New York, May 1. Powell noted that the U.S. economy appears headed for a better balance.

A news conference with Federal Reserve Chair Jerome Powell appears on a monitor on the floor at the New York Stock Exchange in New York, May 1. Powell noted that the U.S. economy appears headed for a better balance. (Seth Wenig, Associated Press)


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WASHINGTON — Making the first of two appearances this week before Congress, Federal Reserve Chairman Jerome Powell on Tuesday demurred when asked by members of a U.S. Senate committee to spitball a future date for cutting the monetary body's benchmark interest rates and stuck to his recent mantra about wanting to see more positive economic data before any potential moves are made.

But the Fed boss did note that the U.S. jobs market was finally settling down after two years of demand far outpacing available workers and that while unemployment has inched up to 4.1% from the 3.7% rate that closed out 2023, the metric was still historically low, and job growth so far this year is averaging over 200,000 new positions per month.

Powell also underscored that Fed officials are now navigating a more balanced challenge when it comes to adjusting monetary policy to successfully achieve the body's two-pronged mandate of maintaining price stability and maximum employment.

"We're well aware that we now face two-sided risks and have for some time," Powell said. "The labor market appears to be fully back in balance. If we loosen policy too late or too little we could hurt economic activity. If we loosen policy too much or too soon then we could undermine the progress on inflation."

At its June meeting, the Fed's Open Market Committee voted to keep rates at the current range of 5.25% to 5.5%, where they've stood since July 2023 after a series of 11 straight increases were levied by the monetary body, a strategy aiming to cool off a too-hot U.S. economy.

The Fed's preferred inflation measure, the Personal Consumption Expenditure index, came in at 2.6% in May, down from 4% in May 2023 but still well shy of the Fed's target rate of 2% annual inflation.

While a series of steady U.S. inflation downticks over the second half of 2023 had spurred the Fed to signal late last year it could assess multiple federal lending rate cuts in 2024, inflation headed back up early this year and forced the monetary body to recompute.

At the conclusion of its June meeting, the Fed committee was projecting five interest rate cuts by the end of 2025, with a likely 0.25% reduction this year and four additional reductions next year, ending 2025 with the body's benchmark rate at 4.1%.

But Powell said no cuts will be made until policymakers have greater confidence in where the U.S. economy is headed, and that will be a decision based on further data. Another path to a rate reduction could come if any unexpected turbulence should arise in the jobs sector, however.

"We're looking for two things," Powell said. "One is just more good inflation data. We had quite a lot of good inflation data the last seven months of last year then we had kind of a bump in inflation in the first quarter, and now we've had one good and one very good inflation reading. And we need more good data so we can be confident that what we're seeing is really, that is where inflation is going. Going back toward 2%.

"You see a labor market that is pretty much in balance, pretty much where it was at in 2019. But ... if we see the labor market weakening unexpectedly … we could also respond to that."

Interest rate adjustments are the Fed's primary weapon in an ongoing battle against the elevated prices of consumer goods and services. The rate increases raise the cost of debt for businesses and consumers, a move that aims to reduce the amount of spending and overall economic activity. That shift in dynamics typically leads to lower inflation rates.

Here's how the Fed interest rate impacts you

Where the Federal Reserve sets its federal funds interest rates — the interest charged on lending between banks to maintain required reserves based on a percentage of each institution's total deposits — trickles down to consumers in numerous ways.

First, mortgage rates don't necessarily move up in tandem with the Fed's rate increases. Sometimes, they even move in the opposite direction. Long-term mortgages tend to track the yield on the 10-year Treasury note, which, in turn, is influenced by a variety of factors. These include investors' expectations for future inflation and global demand for U.S. Treasury bonds. While mortgage rates plunged in the midst of the pandemic, and were hovering around 2% in late 2021, the rates tracked up alongside the Fed's federal funds rate hikes.

Higher rates can also make accessing credit, like qualifying for a home mortgage or new car loan, more difficult as banks tighten lending policy to reflect economic conditions. A poll conducted in March by Bankrate found half of U.S. applicants have been denied a loan or financial product since the Fed began raising interest rates two years ago. Americans with credit scores below 670 are finding it toughest to access credit.

Credit card rates are set by issuing institutions based on a number of factors, including the card applicant's personal credit history, but base rates are computed in part using the prime lending rate which is tied to the Fed's benchmark rates. According to the Consumer Financial Protection Bureau, over the past 10 years, average (annual percentage rates) on credit cards assessed interest have almost doubled from 12.9% in late 2013 to 22.8% in 2023 — the highest level recorded since the Federal Reserve began collecting that data in 1994.

One silver lining for consumers in the midst of a high interest rate period is better returns on savings. Top-yielding savings accounts are currently paying more than 5%, according to CNBC, a rate that is outpacing inflation.

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