High inflation is no longer only risk for U.S. economy: Fed chair Powell

 


Powell's desire to "recalibrate policy" to focus more on the cooling of the labor market is welcome "albeit a little late," said Gregory Daco, chief economist at EY-Parthenon.

In a note to clients, Daco said he thought a cut in June or July would have been optimal for the economy.


Daco added he was worried that some hawkish Fed officials will push back against a September cut.

In his testimony, Powell stressed several times that it was critical for the Fed to remain independent from political pressure.

Independence "is essential, literally essential," Powell said.


He added that it was good news that most lawmakers seem to agree with him.

"I think that's broadly understood, particularly on Capitol Hill, among both sides of the aisle," Powell said.

Independent central banks have better performance on inflation and growth, he said.

There's a subtle difference in how Powell is talking about job market conditions in his answers to questions from senators.

In his prepared remarks, Powell said that labor market conditions "have cooled while remaining strong."

But later, in his answers to questions, Powell pointed to "considerable cooling" in the labor market.

He said that the Fed is now "very much aware" that weak job market and high inflation are the "two-sided risks" facing the economy.

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