(Washington) Federal Reserve Chairman Jerome Powell on Wednesday reinforced the message that the Fed is increasingly focusing on the labor market slowdown and not just on controlling inflation, a shift that signals it is likely to begin cutting its key rate.
“We’re not just an inflation-targeting central bank,” Powell told the House Financial Services Committee on the second of two days of semiannual testimony before Congress. “We also have a jobs mandate.”
On Tuesday, when Jerome Powell addressed the Senate Banking Committee, he suggested that the Fed had made “considerable progress” toward its goal of defeating the worst inflation surge in four decades and noted that cutting rates “too late or too little could unduly weaken economic activity and employment.”
Congress has given the Fed a dual mandate: to maintain price stability and to promote maximum employment.
“For a long time,” Powell said Wednesday, “we’ve had to focus on the inflation mandate.” As the economy emerged from the pandemic recession, inflation hit a four-decade high in mid-2022. The Fed responded by raising its benchmark rate 11 times in 2022 and 2023.
Inflation thus fell from its peak of 9.1% to 3.3%.
The economy and labor market have continued to grow, defying widespread predictions that much higher borrowing costs would lead to a recession. Yet growth has weakened this year.
From April through June, U.S. employers added an average of 177,000 jobs per month, the lowest three-month hiring pace since January 2021.
Jerome Powell told the House panel on Wednesday that to avoid harming the economy, the Fed likely would not wait for inflation to reach its 2% target before starting to cut rates.
Most economists have said they expect the Fed’s first rate cut to come in September. This week, the central bank’s chairman declined to say when he plans to make the first cut.