Powell says Fed to consider rate cuts ‘carefully’
Powell indicates that a robust economy enables the Fed to contemplate rate reductions with caution.
Federal Reserve Chair Jerome Powell indicated that recent indicators of economic vitality would permit the central bank to adopt a measured approach in determining the pace at which it will proceed with interest rate reductions.
“The economy is not indicating any urgency for us to reduce rates,” Powell stated in comments prepared for a speech in Dallas on Thursday. “The current robustness of the economy affords us the opportunity to deliberate our decisions with caution.”
The Federal Reserve has lowered interest rates in its last two meetings, initiating a half-percentage-point cut in September as indications of a potential softening in the labor market emerged. At their recent meeting, officials reduced the benchmark rate by 25 basis points, bringing it to a range of 4.5% to 4.75%.
The Federal Reserve is scheduled to convene on December 17-18. Prior to Powell’s comments, participants in interest-rate futures markets anticipated that the central bank would reduce rates by a quarter point during that meeting, subsequently moderating the tempo of further reductions. Futures market indicators suggest that two further quarter-point reductions are anticipated in 2025, as reported by CME Group.
The central bank elevated interest rates to their peak in twenty years last year as a measure against inflation, subsequently maintaining this stance for over a year to ensure that price pressures would not reemerge.
Since the middle of 2023, inflation has experienced a significant decline; however, the deceleration in price growth has not been consistent, particularly over the past two months. According to the Federal Reserve’s favored measure of inflation, which excludes the often fluctuating prices of food and energy, it is anticipated that prices rose by 2.8% for the year ending in October. In contrast, the overall price increase is expected to be around 2.3%, as noted by Powell on Thursday. The Federal Reserve aims for a sustained inflation rate of 2% in the long term.
On Thursday, Powell reiterated his perspective that inflation is expected to trend downward, though he acknowledged that this trajectory may encounter some volatility. The head of the Federal Reserve has recently expressed increased optimism regarding inflation’s return to the central bank’s target, attributing this outlook to a cooling labor market.
Nonetheless, he indicated that officials would be “monitoring closely to ensure” that inflation decreases in accordance with policymakers’ projections.
