Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on Tuesday, signaling that the central bank is in no hurry to lower interest rates further. Powell described the economy as “strong overall” with easing inflation, though it remains a concern. 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 said.
“We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
Much of the Senate hearing focused on bank supervision rather than monetary policy. Senator Elizabeth Warren of Massachusetts criticized President Donald Trump’s decision to halt the work of the Consumer Financial Protection Bureau, arguing it left consumers unprotected against the nation’s largest banks.
Powell responded that no other federal regulator has taken over the CFPB’s role, but he assured that the broader banking system remains safe. Powell acknowledged the numerous fiscal and monetary dynamics at play, contributing to an uncertain economic environment.
Powell emphasizes cautious rate stance
While he did not delve into trade policy issues during his prepared remarks, he was questioned about tariffs and their economic impact, reiterating that trade policy is outside the Fed’s purview. “The standard case for free trade still makes sense,” Powell said. “In any case, it’s not the Fed’s job to make or comment on tariff policy.
Our role is to react thoughtfully and sensibly to such policies to achieve our mandate.”
Market participants have interpreted the recent communication from the Federal Reserve as an indication that rates will likely remain on hold into the summer, following a significant cut in late 2024. Powell noted that the current policy stance, with the benchmark fed funds rate in a range between 4.25%-4.5%, provides the central bank with the necessary flexibility. He emphasized the Fed’s attentiveness to risks impacting its dual mandate of stable prices and maximum employment.
Addressing the issue of mortgage rates, Powell pointed out that their persistence at high levels is more connected to long-term bond rates rather than the Fed’s short-term rate policies. It’s true that mortgage rates have gone or remained high, but that’s more related to long-term bond rates, particularly the 10-year and 30-year Treasuries, rather than Fed policy,” he said. As Powell continues his testimony on Capitol Hill, his stance highlights the Fed’s cautious approach to changing interest rates, balancing the need to control inflation without hampering economic growth and employment.
