by Howard Schneider
WASHINGTON (Reuters) – Federal Reserve Chairman Jerome Powell assured members of Congress on Wednesday that future rate decisions would be based solely on economic data, as voters suffered from high inflation months before the next American presidential election.
“We are in a political year,” noted the chairman of the Financial Services Committee of the House of Representatives, Patrick McHenry, a Republican from North Carolina, at the start of the hearing of Jerome Powell by the chamber.
The politician stressed that anything the Fed does would be seen through the “prism” of the November election, which is expected to pit Joe Biden, the current president, against former President Donald Trump.
Rate cuts “will really depend on the trajectory of the economy. Our goal is lowest unemployment and price stability, and, with the flow of new data, those will be the things we will take into account,” explained Jerome Powell.
The Fed “would like to see more data which confirms and makes us more confident in the fact that inflation will sustainably return to a rate of 2%” before reducing the key rate, added the head of monetary policy.
“If the economy develops as expected, it will likely be appropriate to begin easing monetary policy at some point this year,” Jerome Powell said in prepared remarks ahead of his hearing.
“But the economic outlook is uncertain and continued progress towards our 2% inflation target is not assured,” added Jerome Powell. The monetary policy chief spoke of the risk of cutting rates too soon, which would trigger a further acceleration in inflation, as well as the risk of maintaining monetary policy too tight for too long, which would harm activity.
Jerome Powell noted that inflation had “declined significantly” since hitting a 40-year high in 2022, but that monetary policy makers still needed “greater confidence” that the price dynamics before reducing interest rates.
Jerome Powell will speak at a new hearing on Thursday, this time before the Senate Banking Committee.
(Reporting Howard Schneider, French version Corentin Chappron, edited by Kate Entringer and Blandine Hénault)
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