(Bloomberg) — Federal Reserve Chair Jerome Powell said the central bank doesn’t need to rush to adjust interest rates, again signaling that officials will be patient before lowering borrowing costs further.
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“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell told the Senate Banking committee Tuesday.
“We know that reducing policy restraint too fast or too much could hinder progress on inflation,” he said. “At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
Following his testimony, Treasury bond yields remained higher on the day while stock prices fluctuated. Traders also largely left unchanged their expectations for rates this year, with a cut not fully priced until September and less than two cuts priced in for all 2025.
Powell’s comments largely echoed remarks he gave in January after Fed policymakers left the central bank’s key policy rate unchanged.
That decision came after the Federal Open Market Committee lowered interest rates at each of its last three meetings in 2024. Powell and other officials have signaled they are likely to hold rates steady until they see more progress on lowering inflation, and as they await further details on President Donald Trump’s economic-policy plans.
The labor market remains sound, which officials have said also allows them to be patient in considering further interest-rate reductions. Powell on Tuesday described the labor market as “broadly in balance” and “not a source of significant inflationary pressures.”
Asked whether the US economy was experiencing a “soft landing” — a term that describes lowering inflation back to target without significantly damaging the labor market — Powell said it was “not for me to say.”
The most recent employment data painted a picture of a slowing, but solid labor market. Employers added 143,000 jobs in January and the unemployment rate ticked down to 4%. Inflation, as measured by the Fed’s preferred gauge, remained above target at 2.6% at the end of 2024. Powell said inflation is “somewhat elevated” above the central bank’s 2% goal.
In his testimony, Powell added that inflation expectations “appear to remain well-anchored.”
Trump’s policy proposals, meanwhile, have added a layer of uncertainty to the economic outlook and will likely prompt a line of questioning for the Fed chair. The Trump administration has ramped up tariffs on goods from China and on all imports of steel and aluminum, threatened additional duties on Canada and Mexico and launched a promised immigration crackdown.
Those measures could put upward pressure on inflation, weigh on economic growth or constrict the number of available workers, all of which would likely have policy implications for the Fed. Some Fed officials have begun to factor in Trump’s policies into their forecasts for how the economy will evolve, while others have said they haven’t yet seen enough details on the plans to do so.
Deregulatory Push
“We are attentive to the risks to both sides of our dual mandate, and policy is well positioned to deal with the risks and uncertainties that we face,” Powell said.
Lawmakers also probed Powell on financial regulation, as Trump advances a deregulatory push across the federal government. That push has already played a role in the coming resignation of Fed Governor Michael Barr from this role as vice chair for supervision. Though he will stay on as a governor, Barr has said he’ll step down from the regulatory post at the end of February, in part to avoid a clash with the new administration.
Powell said he is hopeful a version of a long-awaited bank-capital plan could be reached “fairly quickly,” and would be in line with other large jurisdictions and consistent with international accords.
“We remain committed to completing Basel III Endgame. We think it’s good for US banks, it’s good for our economy that there be a global standard beneath which foreign banks can’t fall,” said Powell.
Lawmakers repeatedly pressed Powell about the impact of a diminished Consumer Financial Protection Bureau. Democratic Senator Elizabeth Warren of Massachusetts asked him who is responsible for examining giant banks to make sure they are not cheating consumers in the absence of the consumer watchdog agency.
“No other federal regulator,” Powell responded.
The questions come after billionaire Elon Musk, who is acting as an adviser to the Trump White House, helped to effectively shut down the CFPB this month.
Powell also told lawmakers the US central bank makes no decisions related to outgoing government payments.
“We make no judgments whatsoever. Those are all made upstream from us,” Powell said, adding that the Fed acts as the Treasury Department’s fiscal agent, processing federal payments on its behalf.
Asked whether the system is safe, Powell said, “I believe it is.”
Powell’s comments come as the Treasury has landed in the spotlight in recent weeks after members of Elon Musk’s government efficiency team were given access to government payment systems at the department. Powell said he didn’t believe members of the so-called Department of Government Efficiency, or DOGE, had tried to access the Fed’s systems.
Powell is set to appear before the House Financial Services Committee on Wednesday.
