Fed Chairman Jerome Powell is open to options for timing interest rate cuts.

Federal Reserve Chairman Jerome Powell has suggested that the central bank is focusing more on the timing of interest rate cuts as inflation begins to ease and the labor market shows signs of cooling.

“High inflation is not the only risk we face,” Powell said in a speech prepared to be presented Tuesday morning to the Senate Banking Committee.

Powell said the economy has made "significant progress" in reducing inflation with the job market resembling pre-pandemic—"strong, but not overly hot." However, he did not specify when the central bank could start raising interest rates. "We continue to make decisions on a meeting-by-meeting basis," he said.

Fed Chair PowelThe economic forecasts released last month showed that most Fed officials expect to cut interest rates once or twice this year if inflation slows down and economic growth remains solid but not impressive. Their next meeting is on July 30-31. The market is focused on whether officials at that meeting will give stronger hints that they may cut interest rates at the next meeting in September or not.

Federal officials are trying to balance two risks. One is that they are acting too slowly to loosen policy and the economy collapses under the pressure of higher interest rates, causing unemployment to rise sharply. The other risk is that low interest rates stimulate economic activity and allow inflation to remain stable above their target.

Inflation has fallen to 2.6% in May, according to the Fed's preferred gauge, down from 4% a year ago but still above the Fed's 2% target.

The economy continues to add more than 200,000 jobs per month, on average, this year. But the unemployment rate has edged up—to 4.1% in June from 3.7% in December—as the number of people looking for work has increased, leading to longer spells of unemployment.

The Fed raised interest rates at the fastest pace in 40 years in 2022 and 2023 to combat inflation, which has also risen to its highest level in four decades. Officials have kept their benchmark interest rate at between 5.25% and 5.5% since July last year.

Officials were surprised in the latter half of last year by the rapid pace of decline, despite strong spending and hiring, leading them to shift their focus from how much to raise interest rates to when to cut them. When Powell appeared before lawmakers in early March, he hinted that the Fed could cut rates in June. Inflation turned around thereafter, derailing that plan.

Recent inflation figures 'have shown some modest progress, and better data will strengthen our belief that inflation is moving steadily towards the 2% level,' Powell said on Tuesday.

The fluctuating inflation situation has left the Fed in a difficult position, where policy makers are seeking a few more months of convincing inflation indicators or evidence of significant slowing in hiring and economic activity before cutting interest rates.

As reported by Bitcoin Magazine recently, analysts at Citi predicted that the Fed could cut interest rates by 200 basis points in the next eight meetings until summer 2025 as the US economy cools. Citing new signs of a slowing economy and increasing unemployment rates, the bank forecasts that the Fed will reduce interest rates by 25 basis points eight times, starting in September and lasting until July 2025. This would bring the benchmark interest rate down from the current range of 5.25%-5.5% to 3.25%-3.5%, a level that Citi expects to hold throughout 2025.