During a recent testimony to Congress, Federal Reserve Chair Jerome Powell emphasized the Fed's focus on the slowing job market in addition to taming inflation. Powell highlighted that the Fed is not solely an inflation-targeting central bank but also has an employment mandate. The Fed's dual mandate, given by Congress, is to maintain price stability and promote maximum employment.
Following a period of high inflation in mid-2022, the Fed raised its benchmark rate 11 times in 2022 and 2023. However, inflation has since decreased from its peak of 9.1% to 3.3%. Despite concerns that higher borrowing costs could lead to a recession, the U.S. economy and job market have continued to grow. Job growth has slowed this year, with an average of 177,000 jobs added per month from April to June.
To prevent economic damage, Powell indicated that the Fed may not wait for inflation to reach its 2% target before considering rate cuts. Most economists anticipate the Fed's first rate cut to occur in September, although Powell has not specified a timeline for the cut.
In response to concerns raised by Republican lawmakers, Powell mentioned that the Fed and other financial regulators are revising a 2023 proposal known as the 'Basel III endgame.' This proposal aims to increase the amount of capital banks must hold against potential losses. Large banks have opposed the stricter requirements, citing potential impacts on lending to consumers and businesses. The three main U.S. bank regulators are close to reaching an agreement on a revised version of the proposal that will be open to public comment.
