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Fed Chair tells Congress lowering interest rates poses "two-sided risks"

JUANA SUMMERS, HOST:

Inflation has been cooling off, so when will the Federal Reserve be ready to start cutting interest rates? That was one of the big questions facing Fed chairman Jerome Powell when he appeared before a Senate committee today, and it is one of the big questions we'll put to NPR's Scott Horsley, who joins us now. Hello, Scott.

SCOTT HORSLEY, BYLINE: Hi, Juana.

SUMMERS: Alright, so Scott, did Powell drop any hints at all of when we might start to see some lower interest rates?

HORSLEY: No. He carefully avoided spelling out of timetable today, saying, as he often does, that he and his colleagues will be guided by incoming economic data. Importantly, the data they're watching now is not only about inflation. It's also about the job market.

You know, for a long time, the job market was so strong, the Fed could almost ignore that while it focused on getting prices under control. Now we start to see some slowdown in the job market. The unemployment rate has inched up to 4.1%, so Powell and his colleagues are really trying to thread the needle here as they decide when interest rates should start coming down.

(SOUNDBITE OF ARCHIVED RECORDING)

JEROME POWELL: This is no longer an overheated economy. We now face two-sided risks. If we loosen policy too late or too little, we could hurt economic activity. If we loosen policy too much or too soon, then we could undermine the progress on inflation. So we're very much balancing those two risks.

HORSLEY: Right now, investors are betting the Fed will start to cut rates in September, provided inflation continues to moderate. We'll get a report on June prices later this week.

SUMMERS: Scott, prices are not any longer climbing as fast as they had been, but polls do suggest there's still a whole lot of dissatisfaction out there with the economy. What did Powell have to say about that?

HORSLEY: He acknowledged people are grumpy, and he says the Fed doesn't try to tell people how they should feel about the economy. While inflation has cooled off a lot, people are still unhappy with those high prices, and many aren't too happy about the Fed's medicine - high interest rates - either. Ohio Democrat Sherrod Brown urged Powell not to keep his foot on the brake too long.

(SOUNDBITE OF ARCHIVED RECORDING)

SHERROD BROWN: Every month that the Fed keeps rates high, Mr. Chair, it costs Americans money by making it more expensive to buy a house and to borrow money.

HORSLEY: Meanwhile, some Republicans on the committee urged Powell not to cut interest rates too quickly, and the Fed chairman said history has shown these are decisions best made by the Central Bank - not by politicians.

SUMMERS: The Federal Reserve is supposed to be insulated from politics, which is not easy in today's partisan environment - harder with an election just around the corner. Where did you see that in today's hearing?

HORSLEY: Yeah, politics showed its head. Powell tried to steer clear of the political land mines, but it didn't stop senators from baiting him. Democrats tried to get Powell to say higher tariffs, like the ones Donald Trump has proposed, would worsen inflation. Republicans tried to blame the Biden administration for higher gasoline and grocery prices. Here's GOP Senator Tim Scott of South Carolina.

(SOUNDBITE OF ARCHIVED RECORDING)

TIM SCOTT: Too many households in America today are living paycheck to paycheck, and they fear the challenges that are coming our way - the headwinds brought to us by the Biden administration.

HORSLEY: Powell mostly sidestepped the partisan wrangling on things like trade and immigration policy, but he was pressed by Democratic Senator Jon Tester of Montana, and he did say the U.S. economy has fared better than most other countries in the wake of the pandemic and Russia's invasion of Ukraine.

(SOUNDBITE OF ARCHIVED RECORDING)

JON TESTER: Clearly, the U.S. economy has performed very well compared to sort of our advanced-economy colleagues.

POWELL: Is there any country in the world with a central bank - any advanced economy that's performing better?

TESTER: I - you know, none comes to mind. As I think of the majors, the answer would be no.

HORSLEY: There have certainly been some growing pains associated with the economic rebound, including inflation. But, you know, most of the world's been hit by higher prices. That's certainly not a U.S.-only problem.

SUMMERS: That was NPR's Scott Horsley. Thank you, Scott.

HORSLEY: You're welcome.

(SOUNDBITE OF KAYTRANADA'S "BUS RIDE") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.
Juana Summers is a political correspondent for NPR covering race, justice and politics. She has covered politics since 2010 for publications including Politico, CNN and The Associated Press. She got her start in public radio at KBIA in Columbia, Mo., and also previously covered Congress for NPR.