Federal Reserve Chair Jay Powell indicated the central bank is inching closer to feeling comfortable about interest rate cuts, saying that he was encouraged by evidence of cooler inflation and that more "good data" would help get the Fed to where it wants to be.

The inflation numbers "have shown some modest further progress" after some hotter readings in the first quarter, "and more good data would strengthen our confidence that inflation is moving sustainably toward 2 percent,” he said in prepared testimony before US lawmakers Tuesday.

Powell appears today before the Senate Banking Committee and tomorrow before the House Financial Services Committee, as part of his semiannual required appearance before Congress.

It is the second time in the last week Powell has offered optimism about the inflation picture. Last Tuesday he noted that the last two inflation readings from April and May "do suggest that we are getting back on a disinflationary path."

The next reading on inflation as measured by the Consumer Price Index is due out Thursday.

It isn’t expected to show inflation getting worse, but it also isn’t expected drop either. Based on “core” CPI — which excludes volatile food and energy prices the Fed can’t control — inflation is expected to hold steady at 3.4% in June from the same level in May.

Powell noted in his prepared testimony the Fed will continue to make decisions on monetary policy meeting by meeting. He reiterated that lowering rates too quickly could reverse progress on bringing inflation down, while keeping rates elevated for too long could weaken the economy and the job market.

Democrats are expected to press Powell to lower rates soon, while Republicans are likely to press Powell on bank capital rules and emphasize that rates shouldn't be cut too close to the election in November.

Powell in his testimony underscored that Congress has entrusted the Fed with the operational independence that is needed to take a “longer-term perspective” in the pursuit of its dual mandate of maximum employment and stable prices.

Some Fed watchers have called for a cut in September following the release of an unemployment report for June that showed signs of a gently cooling labor market, with the unemployment rate ticking up a tenth of a percent for the second month in a row to 4.1%.

While the unemployment rate of 4.1% is still historically low, it’s up from 3.4% early last year.

Powell in his testimony characterized the job market as "strong, but not overheated," and said the uptick in the unemployment rate for the second consecutive month in June is “still at a low level of 4.1%.

Powell seemed attribute the increase in the unemployment rate to an increase in supply of workers, with more people joining the job market, rather than a sign of deterioration.

Powell has said in the past that a couple ticks up in the unemployment rate above 4% isn’t likely to be a trigger for the central bank to cut rates; rather a broad weakening in the job market is more likely. If the job market goes from strong to weak quickly it will be hard for the Fed to arrest damage.

The Fed raised its outlook for inflation at its last policy meeting earlier this month to 2.8% from 2.6% previously and trimmed its projection to one rate cut this year from three.

Investors are betting on a better than 70% chance the Fed will initiate a rate cut for September.

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