In the prepared remarks to the Senate Banking Committee, the Federal Reserve chairman Jerome Powell noted that the U.S. economy had made considerable progress toward the Fed's 2% inflation goal over the past two years, while the domestic labour market conditions had cooled but remained strong. He added that the Fed's restrictive policy stance is helping to bring demand and supply conditions into better balance and to put downward pressure on inflation.
Powell also noted that the first quarter data did not support the greater confidence that inflation is moving sustainably toward 2%, needed by the Fed to cut rates. However, the official indicated that more good data would strengthen that confidence.
In addition, the U.S. central bank's chief admitted that the Fed's policymakers continue to make decisions meeting by meeting and that they are aware that reducing policy restraint too soon or too much could stall or even reverse the progress on inflation.
Powell also highlighted that elevated inflation is not the only risk they face. "Reducing policy restraint too late or too little could unduly weaken economic activity and employment," he added. He pledged that the Fed will continue its practice of carefully assessing incoming data and their implications for the evolving outlook, the balance of risks, and the appropriate path of monetary policy.