July 11 (UPI) -- Federal Reserve Chairman Jerome Powell said Thursday that the relationship between unemployment and inflation has collapsed.
One day after he signaled the Federal Reserve will consider an interest rate cut at its policy meeting this month, Powell said the relationship between lulls in the economy, and employment and inflation are not as strong as they were 50 years ago.
"At the end of the day, there has to be a connection because low employment will drive wages up and ultimately higher wages will drive inflation, but we haven't reached that point. In many cases, that connection between the two is quite small these days," Powell said while testifying before the Senate banking committee.
Powell's comments came after a Labor Department report stating that the United States exceeded expectations by adding 224,000 jobs during the month of June, which analysts believe may make an interest rate cut this month less likely.
"We are learning that the neutral interest rate is lower than we thought and ... the natural rate of the unemployment rate is lower than we thought. So monetary policy hasn't been as accommodative as we had thought," he said.
Powell told the House financial services committee Wednesday that uncertainty around trade policy, tariffs and the global outlook will factor into the Fed's decision whether to cut rates when the next meetings begin July 30.
"Markets were in a buoyant mood on Thursday as Fed Chairman Jerome Powell gave his strongest indication yet that the Federal Reserve will slash interest rates at the July 30-31 meeting," said Raffi Boyadjian, senior investment analyst at XM.
Powell told House lawmakers Wednesday he intends to serve his entire four-year term as Fed chief, dismissing criticisms from President Donald Trump in recent weeks.