Federal Reserve Chair Jerome Powell told lawmakers Tuesday that the central bank sees little urgency to lower interest rates, citing a resilient labor market and lingering inflation risks.
The comments reinforced expectations that the Fed will keep rates steady at its next meeting, despite having aggressively cut rates last year when economic conditions appeared softer.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said in prepared remarks to the Senate Banking Committee, kicking off two days of testimony before Congress.
Optimism Rises as Economy Outperforms Fed Expectations
The Fed’s stance comes as economic confidence has climbed in response to the election Donald Trump, bolstered by steady job growth and strong consumer spending. Since President Donald Trump’s election victory in November, markets have rallied, and business sentiment has improved, reversing concerns that dominated much of 2024.
Powell acknowledged that labor market conditions remain better than Fed officials had projected last year. The unemployment rate ticked down to 4 percent in January, and job gains have averaged 189,000 per month over the past four months—stronger than the cooling trend many economists had expected. Wage growth has also moderated without triggering a surge in layoffs, a combination Powell described as evidence of a “broadly balanced” labor market.
At the same time, inflation progress has slowed, a development Powell suggested justifies the Fed’s pivot to a more patient stance. The personal consumption expenditures (PCE) price index—the Fed’s preferred inflation gauge—stood at 2.6 percent in December, down from a 7.2 percent peak in 2022 but still above the central bank’s 2 percent target.
“If the economy remains strong, and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer,” Powell said. “If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
The Fed’s Post-Election Policy Shift
Powell’s emphasis on patience comes after the Fed cut rates at its final three meetings of 2024, lowering borrowing costs by a full percentage point. Those cuts occurred in the lead-up to the presidential election, when economic concerns were front and center for voters, leading to criticism that the Fed risked the appearance that it was juicing the economy to bolster the Democrat incumbents.
Now, with Trump in the White House the economy performing better than the Fed expected, the central bank’s decision to abruptly pause its rate-cutting cycle raises questions about its consistency. While Powell insisted the Fed remains focused on its dual mandate of price stability and maximum employment, some in financial markets may note the optics of shifting from a cutting cycle under Biden to a wait-and-see approach under Trump.
A key unknown for the Fed is how Trump’s policy agenda will affect inflation and growth. Powell was pressed by lawmakers about the administration’s plans to expand tariffs on Chinese imports and other goods, moves that could push up prices and complicate the Fed’s inflation fight.
“We are attentive to the risks to both sides of our dual mandate, and policy is well positioned to deal with the risks and uncertainties that we face,” Powell said, declining to speculate on how the Fed would respond to Trump’s trade policies.
Some Fed officials have started factoring potential trade disruptions into their economic outlooks, while others argue it’s too early to adjust forecasts based on policies that have yet to take full effect.
Soft Landing? Powell Says It’s “Not for Me to Say”
Asked whether the U.S. economy is achieving the elusive “soft landing”—bringing inflation under control without triggering a major downturn—Powell demurred. “It’s not for me to say,” he responded, though he acknowledged that economic growth has been stronger than many had predicted.
GDP expanded 2.5 percent in 2024, bolstered by resilient consumer demand and steady investment. The economy has so far defied recession fears that emerged when the Fed first began raising rates aggressively in 2022.
Investors currently expect no more than two rate cuts this year, with the first not fully priced in until September. Powell is set to testify before the House Financial Services Committee on Wednesday.
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