Jerome Powell's congressional testimony this week
This week, Federal Reserve Chair Jerome Powell is expected to testify before Congress and reiterate the central bank's commitment to proceeding cautiously with interest-rate cuts this year. The dynamic between financial markets and the Fed has undergone a significant change in recent months regarding the pace and timing of expected rate cuts. Initially, the markets anticipated a highly accommodative central bank, but they have had to adjust their view to one that is more cautious and deliberate.
When Powell last appeared before Congress in June 2023, the Fed's preferred measure of core inflation stood at 4.3% annually. However, by January, it had dropped to 2.8% due, in part, to higher interest rates, as reported by the Bureau of Economic Analysis. Although inflation remains above the Federal Reserve's target of 2%, the job market remains strong, and consumer spending has supported the country's gross domestic product (GDP). Given the absence of clear indications of an imminent recession, the Federal Reserve believes it has the luxury of time to monitor inflation and ensure it is moving sustainably towards its goal before considering interest-rate cuts.
A key factor in determining the Fed's future actions is its view on inflation, and how Powell communicates that view. Recently, Powell and other officials have expressed satisfaction with the price trend while acknowledging the presence of lingering risks. They believe it is too early to relax monetary policy.
Powell will testify in the House of Representatives on Wednesday and then in the Senate on Thursday, presenting the Fed's report on the state of the economy. Economists anticipate that he will echo the message conveyed by many of his colleagues since their last meeting: there is no urgency to cut the influential fed funds rate at this time.
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