The slow re-entry of workers to the job market following the pandemic pushed demand for labor well above supply. Data in recent months have shown demand easing and the labor market returning to the pre-pandemic trend.
The unemployment rate rose last month to 4.1% from 4% in May and from as low as 3.4% in April 2023, the Labor Department said Friday.
While employers added 206,000 jobs in June, downward revisions to the hiring numbers during April and May put the three-month average job growth at 177,000, just below the 178,000 monthly average from 2017 until 2019, according to Moody’s Analytics.
Senators on the banking panel, while noting the Fed’s progress in curbing inflation, urged Powell to avert an increase in unemployment by trimming the federal funds rate from its current range between 5.25% and 5.5%. Policymakers have held the main rate steady since July 2023.
“If unemployment trends upward, you must act immediately to protect American jobs,” Sen. Sherrod Brown, an Ohio Democrat and the committee chairman, told Powell. “Workers have too much to lose if the Fed overshoots inflation targeting, causing a completely unnecessary recession.”
The Fed’s preferred inflation measure — the personal consumption expenditures price index — eased to an annual rate of 2.6% in May from 4% a year earlier.
“We’ve had one good and one very good inflation reading and we need more good data so that we can be confident that what we’re seeing is really where inflation is going,” Powell said. “We don’t need to see it at 2%” before beginning to trim the federal funds rate, he said.
Traders in interest rate futures see 70% odds that the Fed will cut its benchmark interest rate by a quarter point at its September meeting, according to the CME FedWatch Tool. They see zero odds that policymakers will begin cutting borrowing costs at their July 30-31 gathering.
Several senators flagged how high borrowing costs have put the cost of buying a home out of reach for many of their constituents.
“I probably hear more on housing, and housing affordability than any other issue,” Sen. Raphael Warnock, D-Ga., told Powell. “We’ve got to find a way to start bringing market rates down, let people unlock that housing market.”
Powell, while conceding that high interest rates have constrained the housing market, said that the costs of buying and owning a home will fall as inflation eases to the Fed’s 2% target.
“There is no more interest-sensitive spending than buying a house and having a mortgage,” he said. “So, for sure our tighter policy is having an effect on economic activity in the housing sector.”
“But I would also say the best thing we can do for housing is to succeed in getting inflation down to 2% on a sustainable basis, so that rates can come down, so that the housing market can get back to what was the pre-pandemic normal,” Powell said.
