Federal Reserve Chair Jerome Powell expressed concern on Tuesday that keeping interest rates too high for an extended period could harm economic growth. Powell emphasized the need to reduce policy restraint in order to prevent weakening economic activity and employment. Despite recent cooling in the economy, Powell noted that the labor market and economy remain strong. He also highlighted the progress made in lowering inflation to the 2% goal.
The Fed raised the benchmark interest rates 11 times in response to high inflation, bringing the overnight borrowing rate to its highest level in 23 years. However, Powell indicated that the Fed may start cutting rates in September and even suggested a possible reduction by the end of the year.
Recent inflation data has been somewhat encouraging, with the personal consumption expenditures price index at 2.6% in May. Powell mentioned that further progress in inflation data would increase confidence in reaching the 2% target sustainably. He will be providing updates on monetary policy to Congress this week, facing questions from committee members.
Although some Democratic committee members have urged Powell to lower rates sooner, Powell emphasized the Fed’s operational independence and its focus on the broader economy rather than political concerns. Despite signs of economic deceleration, Powell remains optimistic about the solid pace of the U.S. economy and robust private domestic demand.