Jerome Powell, Federal Reserve chairperson, stressed on Tuesday a conservative approach in adjusting interest rates. He cited persistent inflation and the continued resilience of the economy.
Powell said in remarks prepared for his testimony to the Senate Banking Committee that there is no urgent need to change the current position of the central bank.
Powell stated that “our policy is now less restrictive and our economy remains strong. We do not have to rush to change our policies.”
The testimony is the first part of the Fed’s biannual report on monetary policy to Congress. He will appear before the House Financial Services Committee the following day.
Powell’s remarks align with Wall Street expectations, as the futures market suggests that it is unlikely for the Fed to reduce rates during its next meeting scheduled in March.
The rate of inflation continues to be slow, but steady
The Federal Open Market Committee held the benchmark federal funds rates steady at 4.25 to 4.5% in January, after a number of rate reductions in 2024.
Powell said that although inflation is down, it still remains higher than the Fed’s goal for long-term inflation of 2%.
Powell stated that “overall, there are a number of indicators which suggest the conditions on the labor market have largely stabilized.”
The labor market does not cause significant inflationary pressures.
In December, personal consumption expenditures price index (PCE), the Fed’s preferred inflation measure, indicated a 2.6% increase year-overyear.
The January Consumer Price Index (CPI), which is a broad inflation indicator, will be released on Wednesday just prior to Powell’s testimony before the House.
Powell stressed the importance of finding the balance between monetary policy and inflation, warning against premature ease-offs as well as prolonged restrictions.
Powell stated, “We are aware that too little or too quickly reducing the policy restrictions could inhibit progress in lowering inflation.”
The same is true for a reduction in policy restraints too quickly or too low. This could unnecessarily weaken the economy and job market.
Fed will review its policy framework by 2025
Powell said that beyond short-term decisions on rates, the Fed was undertaking a review of its overall policy framework. This included examining strategy, communication, and tools.
The reassessment is scheduled to be completed by the end of summer. It comes five years since the previous major review that resulted in an approach more flexible to inflation target.
Powell stated that “our review will involve outreach and public event involving many parties including Fed Listens around the nation and a May research conference.”
Powell, while reaffirming that the Fed is committed to its inflation target of 2%, noted that the review will consider the lessons learned from the last five years to determine if adjustments are needed to serve the economy better.
Futures markets indicate that there is a lower than 10% probability of a cut in rates at the next FOMC, which will be held on March 18-19.
Investors as well as policymakers will be closely watching upcoming economic and inflation data reports to determine when the central banks might begin to feel confident to ease its policy stance.
The post Fed Chair Powell: No need to hurry in changing policy or cutting rates of interest may be updated as new information is revealed.
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