'Let's Wait And See': Jerome Powell Tells Scott Fitzgerald Why Interest Rates Aren't Being Cut

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During a House Financial Services Committee hearing on Tuesday, Rep. Scott Fitzgerald (R-WI) asked Federal Reserve Chair Jerome Powell about future federal interest rate cuts.

Transcript

00:00Wisconsin. Mr. Fitzgerald, you're recognized for five minutes. Thank you, Chairman. Chairman Powell,

00:05thanks for being here today. Appreciate it. I want to go back to something. We've had

00:11some brief discussions about this in the past, but in September of 2024, with core inflation

00:18still being above target and the labor market was holding steady at the time, the Fed made

00:24a decision to cut rates by a full half percentage point. It kind of raised some serious questions

00:30as to whether or not the data like truly supported such a move at that time. And I think some

00:37of us were surprised that it was a full half percent. So can you revisit that again, what

00:46the Fed was thinking at that time? Because it seems to be somewhat of an enigma now. It

00:51stands out as, you know, why was this done? Why was the half percent done at that point?

00:57I'd be glad to. So first of all, actually the inflation and employment readings were very

01:03similar then to what they are now. They weren't terribly a tenth or two.

01:07Right.

01:07But the difference then was you mentioned that the labor market was stable. It wasn't. The

01:13unemployment rate had actually gone up almost a full percentage point. I was very clear about

01:17this. We were very clear about it in real time too. The concern at that time was that

01:23that the, the, there really hasn't been an experience or hadn't been an experience in

01:27the modern era in which the unemployment rate has gone up close to one percent that hasn't

01:32been followed by much higher levels of unemployment and a recession. So we were looking at that and

01:37saying, and remember at that point, at the point we're talking about, the federal funds rate

01:42was 5.3 percent. So definitely very restrictive level. We were the last of the big central banks

01:47to cut. So we wanted to make a statement that we were supportive of the labor market and not

01:52just inflation. We've been focusing on inflation. I was, I was quite clear about this. So that

01:57it was all about the labor market. Inflation was the same and unemployment was roughly the

02:02same, but it was the rate of change with the unemployment rate that raised a lot of concerns.

02:06And remember we were being criticized for being late to cut. So we could have done 25. If we'd

02:12done 25 in July, we were criticized for not cutting in July. Instead, we cut 50 in September

02:17and it seemed like the right thing to do. You know, and at the end of the day, we, we do what

02:22we think is the right thing. When we think it's the right thing to do, we don't, we don't take into

02:26consideration political factors. If we start doing that, I don't know where that stops. Once you start

02:31considering elections and stuff like that, where does it stop? You know, so, and I didn't,

02:36I didn't want to, I don't want to insinuate that it had anything to do with, with the election

02:40itself, but there just seems to be some very similar numbers right now. And I'm wondering,

02:46and I don't bring this up because I want to kind of make a point about did the Fed do the right thing

02:53or not? I bring it up because it seems like everything's in place right now to kind of do the

02:58same thing, make the same move. I know you've, you know, this morning already, you've talked a little

03:02bit about where you were on inflation right now and kind of what you're watching, but

03:07is there any, is there any lesson there? I mean, are we in a position where, where it would be

03:13appropriate to do something as, as, as big as a half percent cut again? Well, look, I, as I, as I said

03:20earlier, if, if not for, if you just look at the, the basic data and don't look at, at the forecast,

03:26you would say that we, we would have continued cutting. The difference, of course, is at, at this

03:32time, all forecasters are expecting pretty soon, uh, that there, that some significant inflation

03:37will show up from tariffs. Now, and you know, we can't just ignore that, but, but we're not, we're

03:43not, we're just saying, let's wait and see more. That's all we're doing. And if you, you will have

03:47noticed a substantial majority of the committee has written down rate cuts in the, in the remaining

03:52four years, four, uh, four meetings this year. So it's just a question of being prudent and

03:58careful. And, but at a time when the labor market is still strong, we don't see weakness in the

04:03labor market. If we did, that would change things. You know, we're, we're going to continue to adapt

04:08as the data adapt, but that is the difference between then and now. Then inflation was

04:13continued, forecasted to continue to come down. Here, it's forecasted to go up by all forecasters.

04:18So, and again, we're not overreacting to that. We're just saying, Hey, let's, as long

04:22as the economy's strong, we can take a little bit of a pause here. And that's what we're

04:26doing. And again, continue to adapt as the data comes in. If we see data that suggests

04:31that inflation is not going to produce big increases, you know, that would matter. And

04:35if we saw the labor market weakening, that would matter too, but we don't see those things.

04:40What about supply chain in 2020? That was a big issue, obviously related to COVID, but I know

04:46myself and other members when we're in our districts, and we're specifically talking

04:50to light manufacturing, there's, there's concerns about the supply chain. Is that part of the

04:56data package that you review when you make a decision about where we're headed in the

05:00future? Very much so. You know, I think that's one of the, one of the great, well, we'll call

05:06it a great thing, but one of the lessons to be taken from the last episode is supply chains

05:10really matter. We're watching that carefully. It's too soon to say really on that. We're not

05:14seeing it yet, but we, gentlemen's time has expired. Thank you, Chairman. Thank you, Mr.

05:18Fisher. Gentleman.

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