Fed's Powell signals cautious optimism, eyes on inflation and jobs

During a hearing before Congress on Tuesday, Federal Reserve Chairman Jerome Powell gave a moderately optimistic assessment of the state of the American economy. However, he emphasized that the Fed still faces inflation and the labour market challenges.

Jerome Powell, the Fed Chairman, assessed the state of the American economy during a hearing before Congress. His speech was described in a report by analysts at PKO BP Bank. "Over the last two years, the economy has made significant progress towards the inflation target of 2%, and labour market conditions have cooled, although they remain good," Jerome Powell stated before Congress. The Fed Chairman noted that the risks to achieving employment and inflation goals are currently balanced.

Powell emphasized that inflation remains above the long-term target, but after stalling at the beginning of the year, the latest monthly data showed moderate progress. "More positive readings will strengthen the FOMC's conviction that inflation is heading toward 2%, and, by implication, will open the door to rate cuts," PKO BP Bank analysts indicated in the report, interpreting the words of the Fed Chairman.

Jerome Powell noted that elevated inflation is not the only threat currently facing the Fed. As he emphasized, "The Committee will continue to make decisions on a meeting-by-meeting basis." The Federal Reserve Chairman pointed out the balanced consideration of risk factors for potential decisions on interest rates.

"Too early or too large a monetary policy easing could stall or even reverse progress on inflation. At the same time, too late or too little easing could excessively weaken economic activity and employment," Powell warned. Additionally, he assured that an interest rate hike is unlikely, as indicated by PKO BP Bank analysts in the report.

Jerome Powell clearly indicated during the speech that he would not give any hints regarding the timing of future Federal Reserve actions. PKO BP Bank analysts believe that "the balanced speech by J. Powell leaves the door open for a rate cut in September, provided upcoming inflation data continue to show a slow decline."

Experts emphasize that the Federal Reserve's current stance indicates a cautious approach to monetary policy, taking into account inflationary risks and the need to maintain stable economic growth and good labour market conditions.