Federal Reserve to Consider Job Market Slowdown Alongside Inflation

Federal Reserve Chair Jerome Powell testified before Congress, highlighting the need to consider the slowing job market in addition to taming inflation. This shift signals that the Fed may soon start cutting interest rates.

Employment Mandate

Powell emphasized that the Federal Reserve is not just focused on controlling inflation, but also on promoting maximum employment. This dual mandate was given to the Fed by Congress. Powell noted that the Fed has made significant progress in fighting inflation, but cutting rates too late or too little could harm economic activity and employment.

Job Market Growth Slows

The U.S. economy and job market have continued to grow, but at a slower pace. In the second quarter, employers added an average of 177,000 jobs per month, the lowest three-month hiring pace since January 2021. Powell stressed the need for the Fed to avoid damaging the economy and will likely start cutting rates before inflation reaches its 2% target.

Market Reaction

Markets cheered the Fed’s more dovish turn, with the S&P 500, Dow Jones Industrial Average, and Nasdaq composite all rising significantly. Many economists expect the Fed’s first rate cut to occur in September, but Powell declined to provide a specific timeline.

Bank Regulation Overhaul

Under questioning, Powell also addressed a proposal to overhaul bank regulations. The proposal, known as Basel III endgame, aims to increase the amount of capital banks must hold against potential losses. Large banks have opposed the stricter rules, warning that they could cut lending and harm the economy. Powell said the Fed and other regulators are near agreement on a revised version, which will be subject to public comment.

Conclusion

The Federal Reserve’s dual mandate to control inflation and promote maximum employment requires the Fed to consider both factors in its decision-making process. The slowing job market and Powell’s comments suggest that the Fed may soon start cutting interest rates to avoid damaging the economy.

Frequently Asked Questions

Q: What is the Federal Reserve’s dual mandate?
A: The Fed is tasked with controlling inflation and promoting maximum employment.

Q: Why is the job market slowing down?
A: The exact cause is unclear, but some economists point to rising interest rates and supply chain issues.

Q: What does the Fed’s decision mean for the economy?
A: If the Fed starts cutting interest rates, it could help boost economic growth and job creation.

Q: What is the Basel III endgame proposal?
A: The proposal aims to increase the amount of capital banks must hold against potential losses, to prevent another financial crisis.

Q: How will the Fed’s decision impact my personal finances?
A: A rate cut could make borrowing money cheaper, which could lead to lower mortgage rates, car loans, and credit card rates. However, it’s important to consider your individual financial situation and not make any major financial decisions based solely on interest rates.

Author: fortune.com

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