First, the bad news: In speaking to members of the U.S. House of Representatives on Wednesday, Federal Reserve Chair Jerome Powell did not announce when the central bank’s first rate cut would finally arrive.
Powell delivered his scheduled testimony to the House Financial Services Committee with his usual succinct candor, reiterating that a reduction to the Fed’s benchmark interest rate is in the cards this year. But despite inflation trending downward, he also reinforced that such a cut won’t materialize until further concrete evidence of progress.
“We believe that our policy rate is likely at its peak for this tightening cycle. If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” Powell said. “But the economic outlook is uncertain, and ongoing progress toward our 2% inflation objective is not assured.”
As he has after several meetings of the Fed’s policy-setting Federal Open Market Committee, Powell matter-of-factly noted that a rollback of the anchor rate too early or at too large a magnitude could reverse the progress that has already been made. One of the Federal Reserve’s stated goals over the current run of elevated rates has been to tackle inflation in one tightening cycle, rather than easing prematurely and having to adopt a potentially tighter policy down the road.
Powell’s verbiage echoed the guidance issued by the Federal Reserve after its January meeting. Consumer Price Index data released later that month provided some fuel to back the Fed’s wait-and-see approach, with increased inflationary risks illustrating that corralling inflation back within the Fed’s 2% target range won’t be a linear journey. Powell, for his part, didn’t convey any concern over the January setback, instead noting that inflation “has eased notably over the past year.”
He also acknowledged the risks associated with the other side of the coin — waiting too long to cut rates or not cutting them enough, which could weaken the job market too much and hurt consumer spending. Powell concluded his prepared commentary by saying that “we [at the Fed] understand that our actions affect communities, families and businesses across the country” and that “everything we do is in service to our public mission.” In taking questions after his remarks, he also addressed real estate: He pointed to the persistent problem of low inventory that continues to plague housing as a “structural” issue, and that the Fed is already keeping an eye on the commercial market.
