Jerome Powell is walking on eggshells when it comes to interest rates, saying cuts are ‘likely’ but warning he can’t do anything ‘too soon’

Federal Reserve Chairman Jerome Powell headed to Washington this week to give his semi-annual monetary policy report to Congress. Since March 2022, Powell has been battling the rise of inflation with interest rate hikes, but with consumer price increases slowing, it’s an understatement to say that Wall Street has been waiting for a policy shift. The stock market is booming to such an extent, having priced in falling inflation and multiple rate cuts, that critics are openly debating whether it’s hit bubble territory.

The Street didn’t get exactly what it was looking for from Powell, though. The Fed chair did reiterate that interest rates are “likely” at their “peak for this tightening cycle” in prepared remarks, but he also expressed caution about the economic outlook and made it clear the Fed’s policy stance can change as new data comes in. And as for that rate cut: it isn’t here yet.

“If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year,” he wrote in his prepared testimony. “But the economic outlook is uncertain, and ongoing progress toward our 2 percent inflation objective is not assured.”

Powell warned that cutting interest rates “too soon or too much” could cause inflation to reignite, forcing him to hike rates even higher than planned. But by the same token, he noted that cutting rates “too late or too little” could slow economic growth and damage the labor market.