On Thursday, Federal Reserve Chairman Jerome Powell testified before the Senate Banking Committee. During that testimony, he suggested that the central bank is becoming more confident that the nation’s inflation rate is moving in the right direction. If that trend continues, he said that the Fed could implement interest rate cuts sometime this year.
Timing rate cuts to avoid recession
According to Powell, the central bank is still “waiting to become more confident that inflation is moving sustainably at 2%.” He noted that the Fed believes that it will be appropriate to reduce rates once they have that confidence. In his remarks, he acknowledged that the cuts would be needed to avoid driving the country’s economy into recession.
As the Hill noted earlier this year, some Democrat legislators have been calling for the Fed to reduce rates. The current rates, which are now at their highest levels in more than two decades, have had a negative impact on many borrowers. Critics have cited the added costs for auto loans, credit card borrowing, and home mortgages. Americans continue to struggle with higher prices for basic goods and services.
Powell addresses changes in proposed bank rules
In addition to his rate cuts testimony, the Fed Chair addressed concerns over new banking regulation changes issued last summer. The proposed change would force larger banks to increase their reserve holdings to guard against losses. That rule had drawn opposition from large banks, the NAACP, and other civil rights organizations. Many argued that the proposal would increase barriers to minority mortgage lending.
Powell promised that the proposal would be dramatically revised before the end of 2024. He agreed that the current version could reduce mortgage lending and committed to making “broad and material” modifications to the rule.
Meanwhile, the European Central Bank has signaled that it may implement rate cuts as soon as June of this year.
