Federal Reserve chair Jerome Powell’s testimony before US lawmakers will sound sweet to the ears of those waiting for the American central bank to start easing monetary policy. There seem greater odds now of that pivotal point arriving in September, going by Powell’s views. While the task of taming inflation isn’t over, he told lawmakers that it is moving down towards the Fed’s 2% target and its confidence of this downtrend continuing would grow with “more good data.”
He also conceded that lowering interest rates too little or too late could put the US economy and its labour market at risk, while pointing out that the Fed won’t necessarily wait for the exact 2% target to be hit before it starts slashing rates. His testimony suggests that the Fed is setting the stage for a policy switch that may be imminent as price data moves in the desired direction.
Signs of softness in the labour market seem to have caught its attention, prompting it to relax its ultra-sharp focus on inflation. Like Paul Volcker decades ago, Powell has had to re-establish the Fed’s credibility on price stability. And as an old link between price levels and labour conditions has weakened, the challenge has been unenviable.
