On Wednesday and Thursday, Fed Chairman Jerome Powell will deliver his semiannual testimony to Congress. The hearing comes two years after the central bank launched an aggressive campaign to combat rapidly rising inflation. Powell is expected to argue against cutting rates too quickly, pointing out that the economy is performing well and that inflation is slowly approaching the Fed's target range.
The Fed raised rates rapidly in 2022 and 2023, and officials have held them at a two-decade high since July. The central bank's preferred inflation gauge rose 2.4% in January from a year earlier, down from a peak of 7.1% in 2022 but still above the Fed's 2% goal.
Authorities are cautious about reducing interest rates too fast over fears of rekindling pricing pressures — a lesson learned from the 1970s when the Fed was forced to hike rates after cutting them too quickly, leading to a severe recession.
During his testimony to Congress, Jerome Powell may provide a more detailed roadmap for rate reductions. Additionally, data on employment growth in February, job vacancies, and service sector activity will assist in determining whether the labor market and economy are slowing down sufficiently to bring inflation down from current levels of 3% to the Fed's 2% target.
All eyes will be on monthly nonfarm payrolls, JOLTS, and the ADP National Employment reports scheduled throughout the week. These reports will offer insights into the health of the U.S. labor market and the Federal Reserve's "Beige Book," a snapshot of the economy's health.
In February, the U.S. job market is expected to slow slightly. Even yet, a 195,000 increase in nonfarm payrolls would comfortably fall into the generally mild range of results that have stabilized the labor market for most of the past year. The unemployment rate is expected to remain constant at 3.7% once again.
Markets see a 73.3% chance of the Fed's first rate cut arriving in June and a 90.4% probability of a rate cut in July, as per CME Group's FedWatch tool.
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