Fed Chair Powell Signals Caution Amid Inflation Uncertainty
Federal Reserve Chair Jerome Powell testified before lawmakers, reiterating the Fed's prudent approach to interest rate adjustments. Despite a strong economy, Powell emphasized the need for vigilance in monitoring inflation and the potential impacts of policy shifts under the Trump administration.
During his Senate Banking Committee appearance, Powell affirmed that the Fed remains committed to its two main objectives: maximum employment and stable prices. He acknowledged the recent improvement in the labor market but noted that inflation remains slightly elevated relative to the Fed's 2% target.
Powell indicated that the Fed would maintain its current interest rate range of 4.25%-4.5% if the economy continues to perform well and inflation does not exhibit a sustained downward trend. However, he also acknowledged the possibility of rate cuts if the job market weakens unexpectedly or inflation falls more rapidly.
Treasury Secretary Scott Bessent expressed support for the Fed's independence, indicating that the Trump administration is not pressuring the central bank to lower short-term rates. Instead, the focus is on reducing long-term borrowing costs.
Elon Musk, CEO of the Department of Government Efficiency, has called for increased scrutiny of the Fed, raising concerns about its staffing levels. Powell responded that the Fed operates within a strict budget and is accountable to the public.
Despite a strong January jobs report, economists predict that the Fed is unlikely to cut interest rates in the near term. Attention will now turn to the upcoming Consumer Price Index (CPI) release on Wednesday, which is expected to provide further insights into the pace of inflation.
Powell emphasized that the Fed is reviewing its monetary policy strategy, but the 2% inflation target will remain intact. Jennifer Schonberger, a renowned financial journalist, provides comprehensive coverage of the Fed, the economy, and financial markets for Yahoo Finance.