Powell stresses message that US job market is cooling, a possible signal of coming rate cut

Federal Reserve Chair Jerome Powell on Wednesday reinforced the message that the Fed is increasingly focusing on a slowing job market, in addition to its efforts to tame inflation. This shift signals a likely move towards cutting interest rates soon.

"We're not just an inflation-targeting central bank," Powell told the House Financial Services Committee during the second of two days of semi-annual testimony to Congress. "We also have an employment mandate."

On Tuesday, addressing the Senate Banking Committee, Powell suggested that the Fed had made "considerable progress" toward its goal of curbing the worst inflation spike in four decades. He noted that cutting rates too late or too little could unduly weaken economic activity and employment.

Congress has given the Fed a dual mandate: to maintain price stability and to promote maximum employment.

"For a long time," Powell said on Wednesday, "we've had to focus on the inflation mandate." As the economy roared out of the pandemic recession, inflation reached a four-decade high in mid-2022. The Fed responded by raising its benchmark rate 11 times in 2022 and 2023. Inflation has since plummeted from its 9.1% peak to 3.3%.

Despite the economy and job market continuing to grow, defying widespread predictions of a recession due to higher borrowing costs, growth has weakened this year. From April through June, U.S. employers added an average of 177,000 jobs per month, the lowest three-month hiring pace since January 2021.

Powell told the House panel on Wednesday that to avoid damaging the economy, the Fed likely wouldn't wait until inflation reached its 2% target before starting to cut rates.

Most economists expect the Fed's first rate cut to occur in September. Powell, however, has declined to specify when he envisions the first cut happening.