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Fed Chair Jerome Powell told lawmakers that interest rates will likely fall this year

AILSA CHANG, HOST:

Federal Reserve Chairman Jerome Powell told lawmakers today that the central bank is likely to start cutting interest rates at some point this year. But if you were hoping for a firm timetable, do not hold your breath. Powell says he and his colleagues first need to see more evidence that inflation is under control. NPR's Scott Horsley joins us now. Hey, Scott.

SCOTT HORSLEY, BYLINE: Hi, Ailsa.

CHANG: So, I mean, last summer, the Fed's been keeping interest rates at their highest level in more than two decades - right? - which has been making it more expensive for all kinds of borrowers. What is it going to take for rates to start coming down, you think?

HORSLEY: It's going to take some more good economic data. You know, inflation has come down a lot since it hit a four-decade high back in the summer of '22. But Powell and his colleagues want to be sure that progress doesn't stall out with inflation still above their target, which is 2%.

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JEROME POWELL: We're not looking for inflation to go all the way down to 2%. That's not what we're looking for. What we want is just more evidence that will give us more confidence that inflation is on a path down to 2% sustainably. We're just being careful. And because the economy is so strong and the labor market is so strong, we think we can and should be careful as we approach that decision.

HORSLEY: And this is not a new message from the Fed chairman. It's pretty much a rerun of what he said after their last policy meeting in January. So financial markets took this testimony today in stride.

CHANG: Well, what about lawmakers? I mean, how did they react to Powell's message on interest rates?

HORSLEY: Lawmakers have generally been giving the Fed a lot of latitude. Some House Democrats did lobby Powell today to act sooner and cut interest rates more aggressively. They argue the high cost of borrowing is causing its own hardships, especially for people who are, you know, trying to buy a first house or finance a car purchase or just carrying a balance on their credit cards to make ends meet. Powell acknowledged high interest rates can be painful, but he suggested unchecked inflation would be worse.

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POWELL: The point of high interest rates in the current environment is to bring inflation under control. The people who are hurt the most by inflation are people who are on a fixed income, who right away are in trouble when the cost of transportation, food, energy - and when those things go up, they don't have financial resources to deal with it.

HORSLEY: Still, there is a lot of interest in when the Fed might start to reduce those high interest rates. Former Treasury Secretary Larry Summers and colleagues put out a paper last week saying those high borrowing costs are a big reason that many people are so grumpy about the economy.

CHANG: Yeah. I also want to ask, Scott - it was just about a year ago that Silicon Valley bank collapsed, like, really, really fast, which I know forced kind of a rethink of the way the Fed polices banks. So I'm just curious, as we're approaching the anniversary, is that something Powell was asked about?

HORSLEY: Yes. The Fed chairman was asked about the Fed's bank oversight. He also got a lot of questions - mostly from Republicans - about a separate proposal that's been quite controversial, that would require banks to keep more capital on hand as a buffer against potential losses. Banks have protested that idea, saying it would leave them with less money to make loans. Powell says he and his colleagues are taking those complaints seriously and that there will probably be some adjustments in that proposal before it goes forward.

He was also asked about another challenge facing banks, and that's the commercial real estate challenge, with a lot of empty office space as people are working remotely. Powell said he thinks that is a manageable problem, but one that we're probably going to be wrestling with for the next several years.

CHANG: That is NPR's Scott Horsley. Thank you so much, Scott.

HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Scott Horsley is NPR's Chief Economics Correspondent. He reports on ups and downs in the national economy as well as fault lines between booming and busting communities.