Chair of the Federal Reserve Jerome Powell informed Congress on Tuesday that the US economy is no longer viewed as overheated, and the labor market has stabilized to pre-pandemic levels.
During his address to the Senate Banking Committee, Powell noted that the rationale for a potential interest rate reduction is becoming increasingly persuasive, given the current dual risks the economy faces.
Powell emphasized the Fed's need to remain flexible and responsive to economic changes, avoiding predetermined rate actions. He also stressed the importance of maintaining the Central Bank's independence and basing decisions on the latest data regarding the labor market and inflation.
With the presidential election approaching and only two Fed meetings remaining until November, senators voiced concerns about the potential labor market impact of delaying a rate cut. Republicans, meanwhile, worried about inflation exceeding the Fed's 2% target.
Powell highlighted in his speech that while the unemployment rate remains low, it is crucial to focus on progress in reducing inflation and stabilizing the labor market. Analysts believe these factors could pave the way for a possible rate reduction as early as September.
Powell also touched on housing costs and proposed changes in banking regulations under internal Fed discussion. He urged lawmakers to refrain from applying political pressure on the Fed, emphasizing that independence is vital for the Central Bank's effective operation.
Market expectations for the Fed's future actions remain high, especially with upcoming economic reports and consumer price data set to be released in the coming days. The latest data evidence a reduction in inflationary pressure, boosting confidence that the Fed can continue its gradual easing policy.
Analysts claim that Powell's statements suggest a potential reduction in interest rates if subsequent economic data confirm current trends. This confirms the importance of each new report and its impact on the Fed's future decisions.
In the coming months, the Fed will closely monitor economic indicators and respond to changes in both the external and internal economic environment to maintain the stability of the US financial system.
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