Fed's cautious optimism: Powell signals balanced approach ahead

Federal Reserve Chairman Jerome Powell gave a moderately optimistic assessment of the state of the American economy during a hearing before Congress on Tuesday. However, he emphasised that the Fed still faces challenges related to inflation and the labour market.

Jerome Powell, the Fed Chairman, assessed the state of the American economy during a hearing before Congress. His speech was described in a report by analysts at PKO BP Bank. "Over the last two years, the economy has made significant progress towards the inflation target of 2%, and labour market conditions have cooled, although they remain good," Jerome Powell stated during his appearance before Congress. The Fed Chairman noted that the risks to achieving employment and inflation goals are currently balanced.

Powell emphasised that inflation remains above the long-term target, but after stalling at the beginning of the year, the latest monthly data showed moderate progress. "More good data would strengthen our confidence that inflation is moving sustainably towards 2 per cent," said Fed Chairman.

Jerome Powell noted that elevated inflation is not the only threat facing the Fed. He emphasised that the Committee would continue to make decisions on a "meeting-by-meeting" basis. The Federal Reserve Chairman pointed out the balanced consideration of risk factors for potential decisions on interest rates.

Powell warned that too early or too large a monetary policy easing could stall or even reverse progress on inflation; yet at the same time, too late or too little easing could excessively weaken economic activity and employment. Additionally, he assured that an interest rate hike is unlikely, as PKO BP Bank analysts indicated in the report.

Jerome Powell indicated during the speech that he would not give any hints regarding the timing of future Federal Reserve actions. PKO BP Bank analysts believe that "the balanced speech by J. Powell leaves the door open for a rate cut in September, provided upcoming inflation data continue to show a slow decline."

Experts emphasise that the current stance of the Federal Reserve indicates a cautious approach to monetary policy, taking into account both inflationary risks and the need to maintain stable economic growth and good labour market conditions.