Fed Chair Highlights Risks of Premature or Delayed Policy Actions

Fed Chair Powell has testified today, keeping the Federal Reserve's options open regarding the timing of interest rate cuts, which markets are currently anticipating in September. He informed senators that he does not foresee the next move as a rate hike but refrained from specifying a timeline for potential cuts. Powell emphasized, "I'm not going to signal the timing of future actions."

The chair emphasized the presence of risks on both sides of policy decisions: acting prematurely or delaying action. Powell underscored the Federal Reserve's dual mandates of achieving full employment and maintaining price stability, thereby keeping the possibility of a rate cut in September viable without definitively committing to it. He emphasized that the Fed will evaluate its decisions "meeting by meeting."

Recent inflation data have indicated modest additional progress, Powell stated, noting that further positive data could support the Fed's confidence in achieving its 2% inflation target, a prerequisite for rate cuts. Powell also mentioned that unexpected weakness in the labor market could prompt rate cuts. Despite signs of economic slowdown and cooling labor market conditions, Powell highlighted that the US unemployment rate remains historically low and emphasized the strength of the US economy globally.

Powell's Neutral Tone Results in Mixed Market Reactions

Market reactions were subdued as Powell refrained from signaling immediate changes to policy. Stocks remained near record highs, interpreting Powell's economic commentary as balanced. However, Treasuries faced challenges in gaining traction, with some traders positioned for more pronounced signals of policy easing.