WASHINGTON — Federal Reserve Chair Jerome Powell signaled Monday that more interest rate cuts are in the pipeline but suggested they would occur at a measured pace intended to support a still-healthy economy.
His comments, at a conference of the National Association for Business Economics in Nashville, Tennessee, disappointed the hopes of many investors that the Fed would implement another steep half-point reduction in its key rate before the end of the year. The Fed cut its rate by a larger-than-usual half point earlier this month as it has moved past its inflation fight and pivoted toward supporting the job market.
The broad S&P 500 stock index fell 0.2% in afternoon trading, while the Dow Jones Industrial Average dropped 0.5%.
“We’re looking at it as a process that will play out over some time,” Powell said during a question and answer session, referring to the Fed’s interest rate reductions, “not something that we need to go fast on. It’ll depend on the data, the speed at which we actually go.”
At their last meeting Sept. 18, Fed officials reduced their rate to 4.8%, from a two-decade high of 5.3%, and penciled in two more quarter-point rate cuts in November and December. On Monday, Powell said that remains the most likely outcome.
“If the economy performs as expected, that would mean two more cuts this year,” both by a quarter-point, Powell said.
In prepared remarks, Powell said the U.S. economy and hiring are largely healthy and emphasized that the Fed is “recalibrating” its key interest rate, as opposed to cutting rapidly as it would in an emergency.
He also said the rate is headed “to a more neutral stance,” a level that doesn’t stimulate or hold back the economy. Fed officials have pegged the so-called “neutral rate” at about 3%, significantly below its current level.
Powell emphasized that the Fed’s current goal is to support a largely healthy economy and job market, rather than rescue a struggling economy or prevent a recession.
“Overall, the economy is in solid shape,” Powell said in written remarks. “We intend to use our tools to keep it there.”
Inflation, according to the Fed’s preferred measure, fell to just 2.2% in August, the government reported Friday. Core inflation, which excludes the volatile food and energy categories and typically provides a better read on underlying price trends, ticked up slightly to 2.7%.
The unemployment rate, meanwhile, ticked down last month to 4.2%, from 4.3%, but is still nearly a full percentage point higher than the half-century low of 3.4% it reached last year. Hiring has slowed to an average of just 116,000 jobs a month in the past three month, about half its pace a year ago.
Over time, the Fed’s rate reductions should reduce borrowing costs for consumers and businesses, including lower rates for mortgages, auto loans, and credit cards.
“Our decision … reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2%,” Powell said.
Since the Fed’s rate cut, many policymakers have given speeches and interviews, with some clearly supporting further rapid cuts and others taking a more cautious approach.
Austan Goolsbee, president of the Fed’s Chicago branch, said that the Fed would likely implement “many more rate cuts over the next year.”
Yet Tom Barkin, president of the Richmond Fed, said in an interview with The Associated Press last week, said that he supported reducing the central bank’s key rate “somewhat” but wasn’t prepared to yet cut it all the way to a more neutral setting.
A big reason the Fed is reducing its rate is because hiring has slowed and unemployment has picked up, which threatens to slow the broader economy. The Fed is required by law to seek both stable prices and maximum employment, and Powell and other policymakers have underscored that they are shifting to a dual focus on jobs and inflation, after centering almost exclusively on fighting price increases for nearly three years.
The Federal Reserve Chair, Jerome Powell, recently confirmed that the US economy is strong and hinted at upcoming gradual rate cuts in order to sustain economic growth. This announcement comes as a relief to many investors and consumers who have been closely monitoring the state of the economy amidst ongoing trade tensions and global economic uncertainties.
In a statement released after the Federal Reserve’s latest policy meeting, Powell acknowledged that the US economy is in a good place, with low unemployment, solid job growth, and steady inflation. However, he also noted that there are risks to the economic outlook, including slowing global growth and trade tensions that could potentially impact the US economy.
In response to these risks, Powell hinted at potential rate cuts in the near future. While he did not explicitly state when or how many rate cuts would occur, he emphasized that the Federal Reserve will act as appropriate to sustain the economic expansion. This signals a shift in the Fed’s stance from earlier this year when they were more inclined to raise interest rates.
The prospect of rate cuts has been well-received by investors, with stock markets rallying on the news. Lower interest rates can stimulate economic activity by making borrowing cheaper for businesses and consumers, which can boost spending and investment.
However, some critics have questioned the need for rate cuts at a time when the economy is still performing well. They argue that cutting rates now could potentially fuel asset bubbles and inflation down the road.
Overall, Powell’s announcement reflects the Federal Reserve’s commitment to supporting economic growth while also being mindful of potential risks. The upcoming rate cuts are expected to be gradual and data-dependent, with the Fed closely monitoring economic indicators to determine the appropriate course of action.
In conclusion, Powell’s confirmation of a strong US economy and hints at upcoming rate cuts provide some reassurance to investors and consumers. The Federal Reserve’s cautious approach to monetary policy reflects their commitment to maintaining economic stability in the face of global uncertainties. It will be important to closely monitor future developments to see how these rate cuts will impact the economy in the months ahead.
