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Warning from Fed Chair Powell: Prolonged high rates may harm economy’s growth.

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Warning from Fed Chair Powell: Prolonged high rates may harm economy’s growth.

Federal Reserve Chair Jerome Powell expressed concerns about holding interest rates too high for too long, potentially putting economic growth at risk. Despite acknowledging the strength of the economy and labor market, Powell emphasized the need to bring inflation down to the 2% goal that policymakers aim for. The Fed’s decision to raise benchmark interest rates led to 11 consecutive hikes, resulting in the highest overnight borrowing rate in 23 years.

As Powell gears up for a two-day appearance on Capitol Hill, he highlighted the importance of not reducing policy restraint too late or too little, which could weaken economic activity and employment. Market expectations point towards rate cuts starting in September, with the likelihood of another quarter percentage point reduction by year-end. The central bank leader’s remarks coincide with the one-year anniversary of the last interest rate increase by the Federal Open Market Committee, emphasizing the cautious approach towards monetary policy adjustments.

While inflation data has shown some improvement, Powell’s focus remains on maintaining the Fed’s operational independence to carry out its duties effectively. As the U.S. economy experiences some slowdown in GDP growth and contraction in key sectors, Powell reassured that private domestic demand remains robust. Amid calls for rate cuts, Powell emphasized the Fed’s non-political stance, emphasizing the importance of data-driven decision-making to support sustainable economic expansion.

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