The Federal Reserve System (Fed) does not see a need to rush into further reductions of the key interest rate, stated Federal Reserve Chair Jerome Powell during his testimony before the U.S. Senate Banking Committee.
"As monetary policy is currently significantly less restrictive than it was, and the U.S. economy remains strong, we do not need to hurry in adjusting our approach," Powell said.
"We recognize that too rapid or excessive easing of policy could undermine progress in reducing inflation. At the same time, too slow or insufficient easing could lead to unnecessary deterioration in economic activity and employment. When considering the degree and timing of further adjustments to the Fed's target rate range, we will assess incoming data, economic outlook, and risk balance," he stated.
The Fed lowered the rate by 100 basis points from September to December 2024, bringing it to the current level of 4.25-4.5% per annum. The regulator did not change the rate at the January meeting.
Powell noted that the U.S. economy remains robust, and the previously overheated labor market has cooled slightly and is resilient. He added that inflation has approached the Fed's target of 2%, but still remains somewhat elevated.
"If the economy continues to be strong, and the steady movement of inflation toward the target does not persist, we may maintain our restrictive policy for a longer period," Powell said. "If there is an unexpected weakening in the labor market, or if inflation slows down faster than anticipated, we will ease policy accordingly."
Powell added that this year the Fed is conducting a second review of its monetary policy strategy, tools, and communication. The 2% inflation target will be maintained, he stated.