Federal Reserve Chair Jerome Powell said "more good data" would strengthen confidence that inflation is moving down toward the US central bank's 2% target, and recent readings point to "modest further progress" on prices.
In testimony prepared for a Senate hearing Tuesday, Powell warned that lowering interest rates too little or too late could put the economy and the labor market at risk.
The Fed chair also said cutting rates too soon or too much could stall or reverse inflation progress.
"More good data would strengthen our confidence that inflation is moving sustainably toward 2%," Powell told the Senate Banking Committee in prepared remarks. He testifies Wednesday before the House Financial Services Committee.
US central bankers are aiming to bring inflation back to the 2% goal following a post-pandemic surge in prices. While the labor market has held up under pressure from higher interest rates, an uptick in the unemployment rate has put added political pressure on Fed officials to start reducing borrowing costs.
Traders have boosted the probability they'll do so as soon as September. Powell's remarks suggest the Federal Open Market Committee is unlikely to reduce rates when it meet at the end of this month.
Fed officials have welcomed recent data indicating inflation is decelerating again following a jump in prices at the start of the year, though several other policymakers have also said they need more confidence that the trend will continue before reducing borrowing costs.
The Fed's preferred inflation measure rose 2.6% in the 12 months through May, down from 7.1% in June 2022. While unemployment remains low at 4.1%, it has ticked up in each of the last three months.
A number of economists are warning that there's a slowdown afoot in the job market that could worsen. The number of people stuck in unemployment rose in June to the highest level since early 2022, when that measure was rapidly declining.
Powell called the labor market "strong, but not overheated," adding that the central bank's restrictive stance is working to bring supply and demand into better balance.
"Another increase in the jobless rate in the July report could challenge our base case of one rate cut this year in December, raising the possibility of two cuts starting in September," said Yelena Shulyatyeva, senior economist at BNP Paribas.
The Fed has held its policy rate at what it describes as a restrictive level of 5.25% to 5.5% for a year. Futures traders have almost fully priced in a cut for the Sept. 17-18 policy meeting, less than two months before the US election.
Source : Bloomberg
