Federal Reserve Chair Jerome Powell faced bipartisan pressure to cut interest rates when he testified before a House committee Tuesday.
Powell updated the House Financial Services Committee on the state of the economy and the Fed's monetary policy decisions. The conversation lasted three hours, during which Powell answered concerns regarding interest rates and their impact on housing conditions.
Lawmakers from both parties argued that rate cuts would invite more buyers into the market by lowering borrowing costs, perhaps coaxing existing homeowners with low-rate loans off the sidelines to list their properties and boost supply.
The wave of pressure follows the Federal Reserve meeting last week in which Powell announced that the Fed would maintain the benchmark interest rate between 4.25% and 4.5%. This prompted rebukes from President Donald Trump and Bill Pulte, head of the Federal Housing Finance Agency, who called for Powell's resignation again.
Powell said rate decisions ultimately hinge on the Fed's assessment of the best way to meet its congressionally mandated goals of maintaining full employment and stable prices. And right now, the Fed has determined it needs to stand pat to deal with inflation that is higher than its 2% target. Inflation hovers at 2.4%, according to the U.S. Labor Department's Consumer Price Index.
“We see the same thing you do in the housing market. It’s tough. People are locked in,” Powell said. “At a time like this when rates are modestly restrictive, they feel it. We understand that. We only have one tool for our whole economy, not just for housing, so it’s something we consider when we consider the bigger picture. In the medium term, as rates come down, you’ll see normalization in housing.”
Democratic Rep. Rashida Tlaib of Michigan said her constituents can’t wait for rates to decrease. She argued interest rates are pushing prices higher and make suitable housing more difficult to find. “We’re talking about a housing crisis that is getting worse right now,” Tlaib said.
Powell said that in the long run, rates do not affect the supply of housing. The Federal Reserve will wait for the right conditions to cut rates, Powell said, citing softening inflation and an uptick in unemployment as possible factors that would entice the Fed to reduce rates. The Fed could consider rate cuts as early as July, depending on what the data shows.
“We want people to feel so confident with price stabilization, they never think about inflation. That’s where we were for a very long time," Powell said, referring to a time not so long ago when inflation was running much higher. "We made a lot of progress back to that, but we aren’t quite there yet.
“We’re going to finish that job.”