Federal Reserve Chairman Jay Powell on Wednesday signaled increased attention to a cooling job market, a development that has boosted hopes among market watchers for imminent interest rate cuts.
During his testimony to the House Financial Services Committee, Powell noted a shift in focus. “For a long time, we’ve had to focus heavily on the inflation mandate,” he said, referencing the Fed’s dual responsibilities of maintaining stable prices and maximum employment. “But I think now we’re getting to the place where the labor market is getting pretty much in balance to where it needs to be, and so we’re looking at both sides.”
The Fed has maintained interest rates at their highest levels in 23 years for nearly a year to combat inflation. Now, with inflation starting to cool, Powell has acknowledged the growing risks associated with a cooling labor market.
This shift became more evident last Friday when a new report showed the unemployment rate in June had increased by a tenth of a percent for the second consecutive month, reaching 4.1%. Although still historically low, this figure is up from 3.4% early last year.
Powell’s comments suggest a rate cut could be on the horizon, possibly as soon as September. However, he stopped short of specifying a timeline, emphasizing the need for more data on cooling inflation.
“I am not prepared to say that yet,” Powell said, adding that while he has some confidence that inflation is trending toward the Fed’s target, the central bank needs to be sure inflation is moving back to the goal of 2%.
Powell’s remarks came during his semiannual testimony to Congress, following his appearance before the Senate Banking Committee on Tuesday. Throughout his testimony, Powell also defended the independence of the Federal Reserve during an election year.
House Financial Services Committee Chair Patrick McHenry urged Powell to ensure that politics do not influence the Fed’s monetary policy. Republican lawmaker Mike Lawler questioned whether a potential rate cut in September could be perceived as politically motivated so close to an election. Powell firmly rejected this notion.
“It is just not appropriate for us to get into thinking about election cycles,” he said, pledging to remain at his post following the November election, regardless of the outcome. “This is my fourth presidential election at the Fed, and I can tell you, we come to work the next day and do our jobs.”
