Rate cuts likely at 'some point' this year: Fed's Powell

Federal Reserve Chair Jerome Powell told House lawmakers Wednesday that interest rate cuts are likely "at some point" in 2024, and that he is open to large changes to a controversial proposal requiring banks to hold more capital.

The central bank boss covered a number of topics during three hours of testimony before the House Financial Services Committee, touching on everything from immigration to commercial real estate to housing.

Two subjects dominated, however: monetary policy and bank regulation.

Powell made it clear he still expects cuts "at some point this year" even after some hot readings on inflation while also cautioning that the Fed would take its time.

"We want to see a little bit more data," he added during the question-and-answer session.

Powell also clarified Wednesday that he expects "broad and material" changes to a proposed Fed rule that would require the biggest US lenders to hold greater buffers against future losses.

The rule, the most aggressive change to how banks are regulated since the aftermath of the 2008 financial crisis, has been criticized by Republicans, some Democrats, and many banks.

"It's more important that we get this right than we do it fast," he said of that proposal, known as the Basel III endgame.

He didn't rule out heeding calls to pull back the idea and start over with a re-proposal.

"If that turns out to be the appropriate thing, we won't hesitate to do it," Powell said.

Read more: What the Fed rate decision means for bank accounts, CDs, loans, and credit cards

UNITED STATES - JUNE 22: Federal Reserve Chairman Jerome Powell prepares to testify during the Senate Banking, Housing and Urban Affairs Committee hearing titled
Federal Reserve Chair Jerome Powell prepares to testify during a Senate hearing in June 2023. (Tom Williams/CQ-Roll Call, Inc via Getty Images) · Tom Williams via Getty Images

Lawmakers from both parties, including House Financial Services Chair Patrick McHenry of North Carolina, focused on the bank capital rules during their time questioning the Fed chair.

"Regulators should withdraw it and start over," McHenry said of those capital rules.

At another point, Powell acknowledged the huge volume of feedback his agency has received on the proposal saying it was "unlike anything I've seen."

Democratic ranking member Maxine Waters of California focused on housing in her remarks, saying it was the No. 1 driver of inflation.

"Until we address the underlying housing shortage," she said, "inflation will remain too high."

Powell responded that he was indeed watching the issue but that housing was one of multiple measures he is focused on, saying the "overall story" was a lessening of inflation overall.

At other moments, he commented on topics like the role of immigration on the economy, last year’s bank failures, the potential impact of AI in financial services, and the challenges banks face from exposure to commercial real estate problems.

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