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Fed Chair Powell says holding rates high for too long could jeopardize economic growth

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Jerome Powell, chairman of the US Federal Reserve, during a Senate Banking, Housing, and Urban Affairs Committee hearing in Washington, DC, US, on Tuesday, July 9, 2024.

Tierney L. Cross | Bloomberg | Getty Images

Federal Reserve Chair Jerome Powell on Tuesday expressed concern that holding interest rates too high for too long could jeopardize economic growth.

Setting the stage for a two-day appearance on Capitol Hill this week, the central bank leader said the economy remains strong as does the labor market, despite some recent cooling. Powell cited some easing in inflation, which he said policymakers stay resolute in bringing down to their 2% goal.

“At the same time, in light of the progress made both in lowering inflation and in cooling the labor market over the past two years, elevated inflation is not the only risk we face,” he said in prepared remarks. “Reducing policy restraint too late or too little could unduly weaken economic activity and employment.”

The commentary coincides with the approaching one-year anniversary of the last time the Federal Open Market Committee raised benchmark interest rates.

The Fed’s overnight borrowing rate currently sits in a rage of 5.25%-5.50%, the highest level in some 23 years and the product of 11 consecutive hikes after inflation hit its highest level since the early 1980s.

Markets expect the Fed to begin cutting rates in September and likely following up with another quarter percentage point reduction by the end of the year. FOMC members at their June meeting, however, indicated just one cut.

‘Strengthen our confidence’

In recent days, Powell and his colleagues have indicated that inflation data has been somewhat encouraging after a surprise jump to start the year. Inflation as judged by the Fed’s preferred personal consumption expenditures price index was at 2.6% in May after peaking above 7% in June 2022.

“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,” Powell said. “More good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”

The statement is part of congressionally mandated semiannual updates on monetary policy. After delivering the remarks, Powell will face questioning from Senate Banking Committee members on Tuesday, then the House Financial Services Committee on Wednesday.

In past appearances, Powell has veered away from making dramatic policy announcements while having to dodge politically loaded questions from committee members. The questioning could get contentious this year as Washington is on edge amid a volatile presidential campaign.

Several Democratic committee members urged Powell to lower rates soon.

“I’m concerned that if the Fed waits too long to lower rates, the Fed could undo the undo the progress we’ve made on creating good paying jobs,” Sen. Sherrod Brown, D-Ohio, the committee chair, told Powell. “If unemployment trends upward, you must act immediately to protect Americans jobs. Workers have too much to lose if the Fed overshoots [its] inflation target and causes a completely unnecessary recession.”

However, Powell has stressed that the Fed is not political and does not get involved in taking policy sides outside of its own roles. In his prepared remarks, he emphasized the importance of “the operational independence that is needed” for the Fed to do its job.

His other remarks focused squarely on the stance of policy in relation to the broader economy. Recent data has shown the unemployment rate creeping higher and broad growth as measured by gross domestic product receding. Both the manufacturing and services sectors reported being in contraction during June.

But Powell said the data is showing that “the U.S. economy continues to expand at a solid pace” despite the deceleration in GDP.

“Private domestic demand remains robust, however, with slower but still-solid increases in consumer spending,” he said.

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Accounting

Business Transaction Recording For Financial Success

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Business Transaction Recording For Financial Success

In the world of financial management, accurate transaction recording is much more than a routine task—it is the foundation of fiscal integrity, operational transparency, and informed decision-making. By maintaining meticulous records, businesses ensure their financial ecosystem remains robust and reliable. This article explores the essential practices for precise transaction recording and its critical role in driving business success.

The Importance of Detailed Transaction Recording
At the heart of accurate financial management is detailed transaction recording. Each transaction must include not only the monetary amount but also its nature, the parties involved, and the exact date and time. This level of detail creates a comprehensive audit trail that supports financial analysis, regulatory compliance, and future decision-making. Proper documentation also ensures that stakeholders have a clear and trustworthy view of an organization’s financial health.

Establishing a Robust Chart of Accounts
A well-organized chart of accounts is fundamental to accurate transaction recording. This structured framework categorizes financial activities into meaningful groups, enabling businesses to track income, expenses, assets, and liabilities consistently. Regularly reviewing and updating the chart of accounts ensures it stays relevant as the business evolves, allowing for meaningful comparisons and trend analysis over time.

Leveraging Modern Accounting Software
Advanced accounting software has revolutionized how businesses handle transaction recording. These tools automate repetitive tasks like data entry, synchronize transactions in real-time with bank feeds, and perform validation checks to minimize errors. Features such as cloud integration and customizable reports make these platforms invaluable for maintaining accurate, accessible, and up-to-date financial records.

The Power of Double-Entry Bookkeeping
Double-entry bookkeeping remains a cornerstone of precise transaction management. By ensuring every transaction affects at least two accounts, this system inherently checks for errors and maintains balance within the financial records. For example, recording both a debit and a credit ensures that discrepancies are caught early, providing a reliable framework for accurate reporting.

The Role of Timely Documentation
Prompt transaction recording is another critical factor in financial accuracy. Delays in documentation can lead to missing or incorrect entries, which may skew financial reports and complicate decision-making. A culture that prioritizes timely and accurate record-keeping ensures that a company always has real-time insights into its financial position, helping it adapt to changing conditions quickly.

Regular Reconciliation for Financial Integrity
Periodic reconciliations act as a vital checkpoint in transaction recording. Whether conducted daily, weekly, or monthly, these reviews compare recorded transactions with external records, such as bank statements, to identify discrepancies. Early detection of errors ensures that records remain accurate and that the company’s financial statements are trustworthy.

Conclusion
Mastering the art of accurate transaction recording is far more than a compliance requirement—it is a strategic necessity. By implementing detailed recording practices, leveraging advanced technology, and adhering to time-tested principles like double-entry bookkeeping, businesses can ensure financial transparency and operational efficiency. For finance professionals and business leaders, precise transaction recording is the bedrock of informed decision-making, stakeholder confidence, and long-term success.

With these strategies, businesses can build a reliable financial foundation that supports growth, resilience, and the ability to navigate an ever-changing economic landscape.

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Economics

A protest against America’s TikTok ban is mired in contradiction

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AS A SHUTDOWN looms, TikTok in America has the air of the last day of school. The Brits are saying goodbye to the Americans. Australians are waiting in the wings to replace banished American influencers. And American users are bidding farewell to their fictional Chinese spies—a joke referencing the American government’s accusation that China is using the app (which is owned by ByteDance, a Chinese tech giant) to surveil American citizens.

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Economics

Home insurance costs soar as climate events surge, Treasury Dept. says

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Firefighters battle flames during the Eaton Fire in Pasadena, California, U.S., Jan. 7, 2025.

Mario Anzuoni | Reuters

Climate-related natural disasters are driving up insurance costs for homeowners in the most-affected regions, according to a Treasury Department report released Thursday.

In a voluminous study covering 2018-22 and including some data beyond that, the department found that there were 84 disasters costing $1 billion or more, excluding floods, and that they caused a combined $609 billion in damages. Floods are not covered under homeowner policies.

During the period, costs for policies across all categories rose 8.7% faster than the rate of inflation. However, the burden went largely to those living in areas most hit by climate-related events.

For consumers living in the 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, or 82% more than those living in the 20% of lowest-risk zip codes.

“Homeowners insurance is becoming more costly and less accessible for consumers as the costs of climate-related events pose growing challenges to both homeowners and insurers alike,” said Nellie Liang, undersecretary of the Treasury for domestic finance.

The report comes as rescue workers continue to battle raging wildfires in the Los Angeles area. At least 25 people have been killed and 180,000 homeowners have been displaced.

Treasury Secretary Janet Yellen said the costs from the fires are still unknown, but noted that the report reflected an ongoing serious problem. During the period studied, there was nearly double the annual total of disasters declared for climate-related events as in the period of 1960-2010 combined.

“Moreover, this [wildfire disaster] does not stand alone as evidence of this impact, with other climate-related events leading to challenges for Americans in finding affordable insurance coverage – from severe storms in the Great Plans to hurricanes in the Southeast,” Yellen said in a statement. “This report identifies alarming trends of rising costs of insurance, all of which threaten the long-term prosperity of American families.”

Both homeowners and insurers in the most-affected areas were paying in other ways as well.

Nonrenewal rates in the highest-risk areas were about 80% higher than those in less-risky areas, while insurers paid average claims of $24,000 in higher-risk areas compared to $19,000 in lowest-risk regions.

In the Southeast, which includes states such as Florida and Louisiana that frequently are slammed by hurricanes, the claim frequency was 20% higher than the national average.

In the Southwest, which includes California, wildfires tore through 3.3 million acres during the time period, with five events causing more than $100 million in damages. The average loss claim was nearly $27,000, or nearly 50% higher than the national average. Nonrenewal rates for insurance were 23.5% higher than the national average.

The Treasury Department released its findings with just three days left in the current administration. Treasury officials said they hope the administration under President-elect Donald Trump uses the report as a springboard for action.

“We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it,” an official said.

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