Powell will likely highlight the resilient economy as why the Fed is in no rush to further cut rates

US inflation showed scant signs of downward momentum at the start of the year, while healthy job growth undergirded the economy, backing the Federal Reserve’s stance to hold the line on interest rates for now.

Fed Chair Jerome Powell, who offers his semiannual testimony to lawmakers on Tuesday and Wednesday, will likely highlight the resilient economy as a key reason central bankers are in no rush to further cut borrowing costs. With the economy in a good place, Fed officials also have time to assess the impacts of the new Trump administration’s policy changes on trade, immigration and taxes.

Bureau of Labor Statistics figures due on Wednesday, shortly before the second half of Powell’s two-day testimony marathon, are forecast to show the consumer price index excluding food and energy rose 0.3% in January for the fifth time in the last six months.

Compared with a year earlier, core CPI is forecast to have risen 3.1%. While marginally lower than than the annual figure for December, that’s just a 0.2 percentage point decline from the middle of last year.

US Inflation Has Proven Stubborn | January consumer price index seen rising 0.3% for fifth time in six months

After sizable declines in 2023 and early 2024, progress toward further disinflation has essentially stalled, just as the job market revved up late last year. On Friday, Labor Department data showed payrolls growth in the three months through January averaged 237,000 — the strongest for any similar period since early 2023.

That helps explain why Fed officials are content to stand pat for the time being after a full percentage point of rate cuts in 2024. Moreover, proposed policies from the Trump administration risk keeping inflation elevated. 

The CPI report, which also includes an annual update of seasonal adjustment factors and a re-weighting of components that go into the index, will be followed on Friday by retail sales for January. Economists estimate another healthy advance in merchant receipts for the month, excluding motor vehicle dealers.