Jerome Powell, chair of the Federal Reserve, told the Senate on Tuesday that more good inflation data is needed before the Fed can lower interest rates.

Powell testified before the Senate Banking, Housing, and Urban Affairs committee on Tuesday, and will continue his testimony on Wednesday. He told the committee, “The most recent inflation readings, however, have shown some modest further progress, and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.

Since 2012, the Fed has targeted 2 percent inflation as a benchmark of stability.

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He also added, “In light of progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face.”

Powell alluded to the risks of reducing rates too early, which could increase inflation, and of reducing rates too late, which could allow for a significant recession.

The current federal funds rate ranges between 5.25 and 5.5 percent, the highest since 2001. Following high inflation numbers in 2021 and 2022, the Fed raised interest rates at one of the quickest paces in its history from February 2022 to August 2023. The Federal Funds Effective Rate rose from 0.08 to 5.33 percent in the 18-month time period.

Responding to questions from Senator John Tester (D-MT) about the housing market, Powell said, “Monetary policy works through interest-sensitive spending, and there is no more interest-sensitive spending than buying a house and having a mortgage.” Experts in the real estate industry are seeing signals that the industry is beginning to weaken and could see a downturn soon.

According to Fed Fund futures prices, investors do not expect a rate cut at the July Fed meeting but do expect a quarter-point reduction at the September meeting.

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