“I would say we’re close, but not there on inflation,” Powell told the House Financial Services Committee Wednesday in response to a question on the second day of his semi-annual testimony to Congress. “Last year, inflation was 2.6% — so great progress — but we’re not quite there yet.”
“So we want to keep policy restrictive for now,” he said, suggesting interest rates will remain elevated for the foreseeable future.
Fresh inflation data out Wednesday showed consumer prices grew by more than anticipated at the start of the year. The so-called core consumer price index — which excludes food and energy costs — increased 0.4% in January, the largest advance since March.
Details of the report showed higher costs for housing, prescription drugs, car insurance and groceries — driven largely by a surge in egg prices. The advances add to years of price increases, underscoring the ongoing hardship for millions of Americans struggling to stretch their paychecks to cover a higher cost of living.
After cutting borrowing costs by a percentage point since September, Fed policymakers have said it’s time to take a breather on further reductions to assess the economy and await downward inflation progress. “We do not need to be in a hurry to adjust our policy stance,” Powell said in his prepared remarks, repeating comments he made before a Senate panel on Tuesday.Following the inflation data, US stocks opened lower while Treasury yields and the dollar spiked. Interest-rate swaps showed traders now expect just one quarter-point rate cut this year. Before the CPI report, traders were leaning toward two cuts.
Trump Policies
Earlier Wednesday, President Donald Trump called for lower interest rates, noting it would “go hand in hand with upcoming Tariffs” in a post on Truth Social.
When asked about Trump’s post, Powell declined to comment. He added that the American people can be confident the Fed will continue to make decisions based on what’s happening in the economy.
Trump ordered a 25% tariff on steel and aluminum imports earlier this week, adding to a 10% duty on all Chinese imports and now-delayed levies on goods from Canada and Mexico. He’s also threatened reciprocal tariffs against countries with levies on US imports.
Powell said it’s not the Fed’s role to comment on the wisdom of policies enacted by Congress or the administration, but said it’s possible new policies could prompt the central bank to alter interest rates. He pointed to potential changes on tariffs, immigration, fiscal policy and regulation.
“The underlying economy is very strong, but there’s some uncertainty out there about new policies,” he said. “We’re just going to have to wait and see what the effects of those policies are before we before we think about what we can do.”
Bank Supervision
Powell also said that bank regulatory policy was less volatile before Congress established the vice chair for supervision role, suggesting the Fed could do its job more effectively without it.
“Putting it all in a single person, admittedly, just to recommend to the board — can lead to some volatility in these things,” Powell said.
Vice Chair for Supervision Michael Barr, a Biden-era appointee, said he would step down as the Fed’s top banking cop on Feb. 28 or earlier if a successor is confirmed. Barr plans to remain a Fed governor.
Framework Review
Powell said he believes officials will make appropriate and discrete adjustments to its longer-run policy strategy and expects to wrap up the latest review in late summer of this year.
When asked if the 2020 framework limited the Fed’s policy response to inflation, Powell said, “No.”
