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The U.S. is “no longer an overheated economy” with a job market that has “cooled considerably” from its pandemic-era extremes and in many ways is back where it was before the health crisis, Fed Chair Jerome Powell said in remarks to Congress that suggested the case for interest rate cuts is becoming stronger.

“We are well aware that we now face two-sided risks,” and can no longer focus solely on inflation, Powell told the Senate Banking Committee on Tuesday. “The labor market appears to be fully back in balance.” Powell told lawmakers bluntly that “today I’m not going to be sending any signals about the timing of any future actions” on interest rates, as he was quizzed by Democrats about the risks to the job market and by Republicans about the pain to households of inflation that remains above the central bank’s 2% target.

But analysts still saw Powell at least edging the door open to a rate cut as soon as September.

“His emphasis has shifted a bit towards a balance of risks within the Fed’s mandate,” said Christopher Hodge, chief economist for the U.S. at Natixis in New York. “The Fed needs to get ahead of weakness in the labor market...It appears as if the foundation is being laid for a pivot in September.” Powell’s semiannual appearance in the Senate will be followed by a hearing in the House set for Wednesday at 10 a.m. EDT (1400 GMT).

While Powell’s opening remarks focused on a review of the economy and monetary policy, questioning from senators keyed in on housing costs and even more so on proposed changes in bank regulations that the Fed is debating internally.

Powell in his prepared remarks told Senators that inflation had been improving in recent months and that “more good data would strengthen” the case for looser monetary policy.

The Fed has kept its policy rate in the 5.25% to 5.5% range since July of 2023.

Powell’s comments appeared to show increasing faith that inflation will return to the Fed’s target, and contrasted the lack of progress on inflation in the first months of the year to recent improvement that has helped build the Fed’s confidence that price pressures will continue to diminish.

“After a lack of progress toward our 2% inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress,” Powell said in remarks to the Senate Banking Committee. “More good data would strengthen our confidence that inflation is moving sustainably toward 2%.” The Fed receives consumer price information for the month of June on Thursday.

A jobs report on Friday showed a still-solid 206,000 jobs added in June, but with a slowing monthly trend and a rising unemployment rate now at 4.1%.

Powell called that a “still low level,” but also noted that “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.” Leaving policy too tight for too long, “could unduly weaken economic activity and employment,” Powell said, undermining a period of economic growth that he said “remains solid” with “robust” private demand, improved overall supply conditions, and a “a pickup in residential investment.” Following Powell’s comments investors continued give a roughly 70% probability the Fed will cut rates at its September meeting, a view that would likely require changes to the policy statement to be released after the Fed’s July 30-31 meeting.

“He’s beginning to tee up a rate cut,” said Brian Jacobsen, chief economist with Annex Wealth Management in Brookfield Wisconsin. “They view risks in not cutting soon enough.” At the Fed’s June 11-12 meeting the median projection of 19 officials was for just a single quarter-point rate cut by the end of the year, but since then inflation data has come in weaker than expected.

The consumer price index did not rise at all in May, and analysts anticipate another weak reading when new data is released on Thursday.

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