Federal Reserve Chair Jerome Powell said Tuesday that the job market has “cooled considerably” over the past two years.
“The most recent labor market data do send … a pretty clear signal that labor market conditions have cooled considerably compared to where they were two years ago,” Powell said at a Senate Banking Committee hearing.
“This is no longer an overheated economy,” he continued. “This is an economy … that is more or less back, by most measures, to where it was before the pandemic. And that was a strong labor market, but it was not an overheated labor market.”
The U.S. economy added a healthy 206,000 jobs last month, according to data released Friday. However, a slight uptick in the unemployment rate and significant downward revisions in previous months’ job gains also hinted at a cooling job market.
As the central bank weighs whether to cut interest rates, Powell emphasized Tuesday that the central bank is “well aware” that it faces “two-sided risks.”
“If we loosen policy too late or too little, we could hurt economic activity. If we loosen policy too much or too soon, then we can undermine the progress on inflation,” he said. “So we’re very much balancing those two risks, and that’s really the essence of what we’re thinking about these days.”
The Fed has maintained rates at a range of 5.25 percent to 5.5 percent since July 2023, as inflation has come down but remained stubbornly above the central bank’s 2 percent target.
After peaking at a 40-year high of 9.1 percent in June 2022, inflation has eased significantly, falling to 3.3 percent in May.
While Powell acknowledged the recent progress on inflation Tuesday, he also suggested that the Fed still needs “more good data.”
“After a lack of progress toward our 2 percent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress,” he said, later adding, “More good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”