During his semiannual testimony in front of Congress, Federal Reserve chair Jerome Powell warned that keeping the interest rates high could have undesired consequences on the US economy.
In his prepared marks, Powell said that the economy remains strong despite a softening job market while there are clear signs of inflation cooling down. Still, he believes that further economic growth could be jeopardized if the interest rates remain at their current levels.
“At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face,” Powell said. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”
In an effort to battle raging inflation, the Fed embarked on a series of 11 rate hikes, bringing it to 5.25%-5.50%, its highest mark in almost 23 years. After the strategy proved to be efficient, the traders now expect the Fed to start bringing the rates down.
The Federal Open Market Committee previously indicated that there will be one cut in 2024, which is expected to come at the September meeting. However, there are growing expectations among experts that there will be at least two cuts by the end of the year, and Powell’s recent comments are a strong indicator of that.
