Fed Chairman Jerome Powell reiterated his focus on the cooling job market, another sign to market participants that the central bank is inching closer to cutting interest rates.
“For a long time, I think we’ve had to be very focused on the inflation mandate,” Powell told House lawmakers on Wednesday, referring to the central bank’s mission of balancing price stability with maximum employment.
“But right now, I think the labour market is pretty much reaching the balance that it needs, so we’re looking at both sides.”
The Fed has kept interest rates at their highest level in 23 years for nearly a year in an effort to curb inflation.
Now, with inflation starting to subside again, Powell has made it clear that the central bank is increasingly aware of the risks posed by a cooling labor market.
The latest evidence of this was released last Friday: a new report showing that the unemployment rate rose for a second straight month, 0.1 percentage point, to 4.1% in June — still low by historical standards, but up from 3.4% at the start of last year.
read more: How does the labor market affect inflation?
Powell’s acknowledgment of these risks in the labor market is a sign to Fed watchers that a rate cut could be on the way, possibly as early as September.
But the central bank governor on Wednesday avoided being specific about when interest rates would start to be cut, saying he needed more data on subsiding inflation. The Consumer Price Index (CPI) report for June, due on Thursday, will be closely watched to see whether rates will be cut.
While Chairman Powell said he has some confidence that inflation is declining toward his target, the question now is rather whether the central bank is sufficiently confident that inflation will return to its 2% target.
“I’m not ready to say that yet,” Powell said.
read more: How Federal Reserve interest rate decisions affect bank accounts, CDs, loans, and credit cards
Powell spoke before the House Financial Services Committee on Wednesday as part of his semi-annual congressional appearance. He testified before the Senate Banking Committee on Tuesday.
As he did on Tuesday, Powell spent Wednesday defending the central bank’s independence in a year of intense election action.
House Financial Services Committee Chairman Patrick McHenry told Powell, “We must not allow politics to cloud the Fed’s monetary policy.”
Another Republican, Mike Lawler, asked Powell whether he acknowledged that a September rate cut “could be seen as political just 30 to 60 days before the election.”
Powell denied that politics would influence any decisions the central bank makes.
“It’s not appropriate for us to think about election cycles,” he said.
And he vowed to remain at his desk after the election results are in, whatever the outcome of November’s election.
“This will be my fourth election as chairman of the Federal Reserve Board, and I can assure you that I will be at work the next day and doing my job.”
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