Labor market is back in balance, more inflation data needed before rate cuts: Powell

WASHINGTON (TND) — Federal Reserve Chair Jerome Powell was on Capitol Hill Tuesday to brief senators on the state of the central bank's fight against inflation, which investors and economists hope is coming to an end as high interest rates threaten to stifle business growth.

Powell told members of the Senate Banking, Housing and Urban Affairs Committee the labor market is essentially back to where it was in 2019 before a tight market strained supply chains and fueled price increases, but that he and his colleagues need more data showing inflation is on a sustained path to their 2% target before they can be confident enough to cut interest rates. On Wednesday, Powell will appear before the House Financial Services Committee.

We’re very much aware that we have two-sided risks now, as I mentioned earlier, and we’re determined to balance those as best we can. We want to see more good inflation data and we also want to continue to see a strong labor market," Powell said.

The Fed's preferred measure of inflation from the Department of Commerce showed inflation cooled to 2.6% in May.

Aware of the eagerness on Wall Street and Capitol Hill to see interest rates cut, which the Fed is expected to do only once this year, Powell said he's "not going to be sending any signals about the timing of any future actions."

Several lawmakers pressed Powell for his thoughts on the tight housing market, which is made more inaccessible by high mortgage rates. The average rate 30-year fixed-rate mortgage is about 7%, according to Freddie Mac.

"The best thing we can do for housing is to succeed in getting inflation down to 2% on a sustainable basis so that rates can come down so that the housing market can get back to what was the pre-pandemic normal, which is to say still a housing shortage but not dealing with the kinds of specific things we’re dealing with now," Powell said.

As Powell was testifying, elsewhere on Capitol Hill, members of the Senate Committee on Health, Education, Labor and Pensions heard from a Pennsylvania mother of eleven and a small business owner about how rising prices have impacted them.

“With the paper products and dairies and meats going through the roof, we easily blow through our grocery budget within the first two weeks of the month," Erin Wiggle said.

Daniel Lee, owner of Farina Pasta and Noodle in Philadelphia, explained the tough choices he's forced to make because of rising supply costs.

A lot of (customers) get very upset when their portion sizes are shrunk or when the prices are increased and they tend not to return and they also tend to leave bad reviews on sites like Google and Yelp and things like that," Lee said.

Even large restaurant chains are not immune to this kind of scrutiny: Some Chipotle customers skeptical of portion sizes have gone viral for using their phones to record their order being made as a kind of pressure tactic to make sure they get the appropriate amount of food. CEO Brian Niccol said portion sizes have not changed and that the trend is "a little rude to our team members."