WASHINGTON — The Federal Reserve faces a cooling job market as well as persistently high prices, Chair Jerome Powell said in written testimony Tuesday, a shift in emphasis away from the Fed's single-minded fight against inflation of the past two years that suggests it is moving closer to cutting interest rates.
Powell pointedly noted that “elevated inflation is not the only risk we face." Cutting rates “too late or too little could unduly weaken economic activity and employment,” he said. In the past, Powell and other Fed policymakers have repeatedly stressed that the economy's strength and low unemployment rate meant they could be patient about cutting rates and wait to ensure that inflation was truly in check.
Last week, Powell said at a monetary policy conference in Portugal that there had been “quite a bit of progress on inflation,” something that Fed officials have said they need to see consistently before they would feel confident enough to cut rates. In May, year-over-year inflation fell to just 2.6%, according to the Fed’s preferred measure, not far above its 2% target and down sharply from a peak of 7.1% two years ago.