"We continue to make decisions meeting-by-meeting," Powell said in the first of his two-day testimony before the US Senate Banking Committee. "We know that reducing policy restraint too soon or too much could stall or even reverse the progress we have seen on inflation."
At the last meeting of its policy-making Federal Open Market Committee (FOMC) that concluded on June 12, the Fed left rates in a range of 5.25% to 5.5%. That’s the highest level for rates since 2002.
Powell’s Senate testimony came two days before the release of the June reading for the Consumer Price Index (CPI), a key gauge of US inflation.
The CPI moderated in May, growing at 3.3% year-on-year, after reaching 3.4% in April.
Another inflation marker closely watched by the central bank - the US Personal Consumption Expenditures (PCE) Index - grew 2.6% year-on-year in May, from 2.7% in April.
Both, however, remained above the Fed’s 2%-per-year inflation target.
Some Senate members were of the opinion that the FOMC may be overthinking the impact of inflation and urged for a quicker interest rate cut to avoid jeopardizing economic growth.
The US economy expanded at a yearly rate of 1.4% in the first quarter of 2024, slowing from the previous quarter's 3.4% growth.
Senator Sherrod Brown, who led the hearing, told Powell he was concerned the Fed could undo the progress made on creating good paying jobs if it waits too long to lower interest rates.
"If unemployment trends upward, you must act immediately to protect Americans’ jobs. Workers have too much to lose if the Fed overshoots [its] inflation target and causes a completely unnecessary recession," Brown said.
Powell, however, insisted that the US central bank was on the right track.
"In light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face," Powell said.
Powell also said that reducing policy restraint too late or too little could unduly weaken economic activity and employment.
"In considering adjustments to the target range for the federal funds rate," Powell said.
The FOMC will continue with its path of "carefully assessing incoming data and their implications for the evolving outlook, the balance of risks, and the appropriate path of monetary policy," Powell added.
In his last comment on inflation, Powell said the Fed might get to its 2%-per-year target by the end of 2025 or the following year.