“We’re not just an inflation-targeting central bank,” Powell told the House Financial Services Committee on the second of two days of semi-annual testimony to Congress. “We also have an employment mandate.” Powell made his remarks days after the unemployment rate hit 4.1%, the highest level in over three years and an indication the U.S. could be on the brink of a recession.

On Tuesday, when Powell addressed the Senate Banking Committee, he suggested that the Fed had made “considerable progress” toward its goal of defeating the worst inflation spike in four decades and noted that cutting rates “too late or too little could unduly weaken economic activity and employment.”

Congress has given the Fed a dual mandate: To keep prices stable and to promote maximum employment.

“For a long time,” Powell said Wednesday, “we’ve had to focus on the inflation mandate.” As the economy roared out of the pandemic recession, inflation hit a four-decade high in mid-2022. The Fed responded by raising its benchmark rate 11 times in 2022 and 2023. Inflation has since plummeted from its 9.1% peak to 3.3%.

Still adding jobs—at a slower pace

The U.S. economy and job market have continued to grow, defying widespread predictions that much higher borrowing costs resulting from the Fed’s rate hikes would cause a recession. Still, growth has weakened this year. From April through June, U.S. employers added an average 177,000 jobs a month, the lowest three-month hiring pace since January 2021.

Powell told the House panel on Wednesday that to avoid damaging the economy, the Fed likely wouldn’t wait until inflation reached its 2% target before it would start cutting rates.

Markets cheered the Fed’s more dovish turn, with the S&P 500 up 0.7% as of 1:30 p.m. Eastern Time, and on track to set its 37th all-time high this year. The Dow Jones Industrial Average was up about or 0.5%, and the Nasdaq composite was adding 0.9% to its own record.

Most economists have said they expect the Fed’s first rate cut to occur in September. Powell this week has declined to say when he envisions the first cut.

Under questioning from several Republican lawmakers, Powell said the Fed and other financial regulators will overhaul a 2023 proposal, known as the “Basel III endgame,’’ that would raise the amount of capital that banks are required to hold against potential losses.

Large banks have aggressively fought against the stricter requirements, which emerged in the aftermath of the 2007-2008 financial crisis. They have warned that the tighter rules would force them to cut lending to consumers and businesses, potentially imperiling the economy.

Powell said the three main U.S. bank regulators — the Fed, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency — were near agreement on a new version that would be subject to public comment.