Federal Reserve Chairman Jerome Powell reinforced the message that the Fed is increasingly paying attention to the slowing labor market and not just the inflation controla change that indicates that interest rates will probably soon begin to be reduced.
“We’re not just a central bank dedicated to addressing inflation,” Powell told the House Financial Services Committee, in the second of two days of semiannual testimony before Congress. “We also have a mandate related to employment.”
Addressing the Senate Banking Committee on Tuesday, Powell said the Fed had made “considerable progress” toward its goal of beating the biggest spike in inflation in four decades and noted that cutting rates “too late or too little could unduly weaken economic activity and employment.”
Congress has given the Fed a dual mandate: to maintain price stability and promote maximum employment.
“For a long time,” Powell said Wednesday, “we’ve had to focus on the inflation mandate.” As the economy emerged from the pandemic-induced recession, inflation hit a four-decade high in mid-2022. The Fed responded by raising its benchmark rate 11 times in 2022 and 2023. Inflation has since fallen to 3.3% from its peak of 9.1%.
Growth in the U.S. economy and labor market have continued, defying widespread forecasts that sharply higher borrowing costs from the Fed’s rate hikes would trigger a recession. But growth has weakened this year. From April through June, U.S. employers added an average of 177,000 jobs a month, the slowest quarterly pace of hiring since January 2021.
Powell told the House panel on Wednesday that to avoid damaging the economy, the Fed would likely not wait until inflation hits its 2% target before beginning to cut rates.
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