The Federal Reserve is not yet confident enough that inflation has been squashed to start cutting interest rates to juice the economy, Fed Chair Jerome Powell told House lawmakers Wednesday.
The bank’s rate-setting committee won’t “reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent,” Powell told the House Financial Services Committee, according to prepared remarks.
Wall Street has been waiting with bated breath for the central bank to start slashing rates, which will lessen the cost of borrowing money and is expected to have a stimulative effect on business activity within the economy.
That could translate into political capital for the Biden administration ahead of the 2024 election as financial markets pop and the cost of financing goes down, affecting everything from mortgage rates to business loans.
The Fed is also wary of leaving rates too high for too long, potentially slowing the economy into a recession.
Accordingly, Democrats have been rooting for rate cuts while Republicans have accused the Fed — a politically independent agency — of playing a political game.
“I think [Powell is] going to do something to probably help the Democrats, I think, if he lowers interest rates,” former President Trump told Fox Business Network in February.
“It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected, I don’t know.”
Trump, who appointed Powell to lead the Fed in 2017, frequently tried as president to pressure the central bank into cutting rates to support his political goals.
Inflation has declined over the past year and a half, falling to an annual rate of 3.1 percent off a high of nearly 9 percent in June 2022. There has been higher volatility in the consumer price index over the past few months as the index has resisted the final descent toward 2 percent.
The overall decline has occurred even as the unemployment rate has stayed near historical lows, as the inflationary effect of pandemic shutdowns and economic stimulus wanes.
Progressive groups say this suggests the Fed’s interest rate tightening cycle was unnecessary and created undue stress in the economy.
“After 19 months of prices coming down from their peak and over two years of historically low unemployment, it’s clear we didn’t need mass joblessness to lower inflation. The Fed’s rate hiking campaign was deeply flawed,” economist Rakeen Mabud of the progressive Groundwork Collaborative think tank said in a statement.
“Congress must confront Chair Powell with tough questions about why he hasn’t reversed course and moved to cut interest rates,” she said.