WASHINGTON — The U.S. labor market is cooling as prices remain high, Federal Reserve Chairman Jerome Powell warned in written testimony Tuesday.
Unemployment rose to 4.1% for the first time since the COVID-19 pandemic.
The U.S. central bank “has made considerable progress” toward its goal of defeating the worst outbreak of inflation in four decades, Powell said in testimony before the Senate Banking Committee.
“Inflation has eased” over the past two years, Powell said, but consumers are still suffering from high prices and are not seeing any slowdown.
Powell stressed that “elevated inflation is not the only risk we face.” Cutting rates “too late or too little could inappropriately weaken economic activity and employment.”
The head of the U.S. central bank is being questioned by the Senate committee in the first of two days of semiannual testimony before Congress. He is due to appear before the House Financial Services Committee on Wednesday.
After more than a yearFrom March 2022 to July 2023, the Fed raised its benchmark interest rate 11 times to a two-decade high of 5.3% to combat inflation, which hit 9.1% two years ago. The hikes raised the cost of borrowing by increasing mortgage rates, auto loans and credit card rates, among other types of loans. The aim was to curb lending and cool the economy.
In the past, Powell and other Fed officials repeatedly emphasized that the strength of the economy and low unemployment rate allowed them to be patient about interest rate cuts and wait to make sure inflation was truly under control.
But on Tuesday, Powell said the labor market “has cooled but remains strong.” He added that economic growth has moderated after a purported expansion in the second half of last year. Last week, the government reported that hiring remained normal in June, although unemployment rose for a third straight month to 4.1%.
Powell’s remarks on Tuesday did not offer the one piece of information investors are most eager for: when the U.S. central bank will make its first rate cut.
Some economists close to the White House say the first cut will come at the bank’s meeting in September. If so, it should be just 0.25%, which means very little for consumers.
Source: AP.