Fed Chair Powell's testimony to be watched for any hint on rate-cut timing

WASHINGTON (AP) — When will the Federal Reserve start cutting interest rates this year, and by how much?

With the economy and inflation running hotter than expected, those questions will seize attention Wednesday, when Fed Chair Jerome Powell begins two days of testimony to Congress.

The financial markets are consumed with divining the timing of the Fed's first cut to its benchmark rate, which stands at a 23-year high of about 5.4%. A rate reduction would likely lead, over time, to lower rates for mortgages, auto loans, credit cards and many business loans. Most analysts and investors expect a first rate cut in June, though May remains possible. Fed officials have projected that they will cut rates three times this year.

Powell's semi-annual testimony — on Wednesday to the House Financial Services Committee and Thursday to the Senate Banking Committee — coincides with intensified efforts by the Biden administration to stem public frustration with inflation, which erupted three years ago and has left average prices well above where they were before. President Joe Biden's bid for re-election will pivot in no small part on voter perceptions of his handling of inflation and the overall economy.

The administration is trying to crack down on what it calls unjustified price hikes by many large companies. Biden recently attacked “shrinkflation,” whereby a company shrinks the contents of a product rather than raise its price. The president has also sought to limit so-called “junk fees,” which in effect raise the prices that consumers pay.

Overall inflation has steadily cooled, having measured at just 2.4% in January compared with a year earlier, according to the Fed’s preferred gauge, down from a peak of 7.1% in 2022. Yet recent economic data have complicated the picture and...