Powell Testimony: What to watch ahead of Day 2

Federal Reserve Chair Jerome Powell will testify in front of a House committee on Wednesday for the second day of his semi-annual monetary policy report.

In his Tuesday remarks, while wanting to avoid sending rate timing signals, Powell stated that it is "no longer an overheated economy," and the job market has cooled, suggesting the case for interest rate cuts is strengthening.

Powell said the labor market is "not a source of broad inflationary pressures for the economy now." However, he highlighted that "if the labor market weakens unexpectedly, that could be a case for loosening policy."

"Labor market conditions have cooled considerably compared to where they were two years ago," and the labor market appears to be fully back in balance, accordng to Powell.

Overall, when assessing potential rate cuts, the Federal Reserve Chair said they want to see "more good inflation data" but noted the “two-sided risk.” Powell said that if they loosen policy too late or too little, it could hurt economic activity. On the other hand, if they loosen policy too much or too soon, then it could undermine the progress on inflation.

Ahead of the second day of testimony, investors will again be closely watching his answers for any further clues on the policy outlook and any further details on the answers provided on day one.

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