Fed Chair signals gradual rate cuts, leaving flexibility for data-driven decisions on inflation and growth
Federal Reserve Chair Jerome Powell announced that the central bank plans to lower interest rates “over time,” while affirming that the US economy remains stable, according to BNN Bloomberg.
Powell expressed confidence that inflation will continue its downward trend towards the Federal Reserve’s 2 percent target. He added that current economic conditions “set the table” for further easing of price pressures.
Speaking at the National Association for Business Economics annual meeting in Nashville, Powell emphasized the Fed's approach of adjusting policy based on the evolving economy.
“If the economy evolves broadly as expected, policy will move over time toward a more neutral stance,” he said.
He stressed that the Federal Open Market Committee (FOMC) would continue to make decisions meeting by meeting, relying on incoming economic data. Powell clarified that the committee has no “preset course” and will adjust, as necessary.
The Federal Reserve’s current benchmark rate, lowered earlier this month to a range of 4.75 percent to 5 percent, is still seen as restrictive to economic activity. Investors remain uncertain about the pace of future rate cuts, which Powell left open for discussion.
During a Q&A session, Powell mentioned that the FOMC’s September projections indicated quarter-point rate cuts could be made in the upcoming November and December meetings.
He cautioned that final decisions would depend on future economic data, stating, “This is not a committee that feels like it’s in a hurry to cut rates quickly.”
In September, the Fed enacted its first rate cut since 2020, reducing borrowing costs by half a percentage point to protect the slowing labour market.
Powell described the labour market as solid but noted it had “clearly cooled over the past year.” He also stated that further cooling was unnecessary to achieve the 2 percent inflation target.
Recent inflation data, showing a 2.2 percent annual increase in the personal consumption expenditures price index, has bolstered confidence among Federal Reserve officials that inflation is heading in the right direction.
Powell remarked that the recent disinflation trend is “broad-based,” allowing policymakers to focus more on supporting the labour market. However, he warned that cutting rates too quickly could risk reigniting inflation.
Fed Governor Michelle Bowman has also stressed caution, advocating for a “measured” pace in lowering interest rates due to ongoing inflation risks. Powell acknowledged that projections for 2024 and 2025 anticipate additional rate cuts but stated that future decisions would depend on economic conditions.
Investors anticipate further cuts, with futures markets suggesting an additional 75 basis points reduction by the end of the year.
Labour market data expected on Friday, including the unemployment rate and job gains in September, could further guide the Federal Reserve’s decision-making process.
Economists predict employers added 150,000 jobs in September, while the unemployment rate is expected to remain at 4.2 percent.
