Fed's Jerome Hayden Powell highlights slowing job market in signal that rate cuts may be nearing

The Federal Reserve faces a cooling job market as well as persistently high prices, Chair Jerome Powell said in written testimony Tuesday, a shift in emphasis away from the Fed's single-minded fight against inflation of the past two years that suggests it is moving closer to cutting interest rates. 

The Fed has made “considerable progress” toward its goal of defeating the worst inflation spike in four decades, Powell said in his testimony to the Senate Banking Committee."Inflation has eased notably” in the past two years, he added, though it still remains above the central bank’s 2% target.

Powell pointedly noted that “elevated inflation is not the only risk we face." Cutting rates “too late or too little could unduly weaken economic activity and employment,” he said.The Fed chair is addressing the Senate panel on the first of two days of semi-annual testimony to Congress. 

On Wednesday, he will testify to the House Financial Services Committee.From March 2022 to July 2023, the Fed raised its benchmark interest rate 11 times to a two-decade high of 5.3% to fight inflation, which peaked at 9.1% two years ago. 

Those hikes increased the cost of consumer borrowing by raising rates for mortgages, auto loans and credit cards, among other forms of borrowing. 

The goal was to slow borrowing and spending and cool the economy. In the past, Powell and other Fed policymakers have repeatedly stressed that the economy's strength and low unemployment rate meant they could be patient about cutting rates and wait to ensure that inflation was truly in check. 

But on Tuesday, Powell said the job market has “cooled while remaining strong." 

And he added that the economy's growth has moderated after a strong expansion in the second half of last year. Last week, the government reported that hiring remained solid in June, though the unemployment rate rose for a third straight month to 4.1%. 

Powell's prepared testimony Tuesday did not provide what Wall Street investors are watching for most closely: Any clear indication of the timing for when the Fed might make its first rate cut. 

But the testimony will likely harden investors' and economists' expectations that the first reduction will come at the central bank's September meeting.