U.S. Federal Reserve Chair Jerome Powell indicated on Monday that the recent half-percentage point interest rate cut does not signal a pattern of aggressive rate reductions.
Speaking to the National Association for Business Economics in Nashville, Tennessee, Powell emphasised that future decisions will depend on economic data, with the next moves likely to be smaller.
“We are not on any preset course,” Powell said, adding that if the economy evolves as expected, future rate cuts will be more gradual. He noted the Federal Open Market Committee (FOMC) will continue to assess conditions on a "meeting by meeting" basis, aiming to balance inflation control with labour market stability.
Powell suggested two more rate cuts may be expected this year, each likely to be a quarter percentage point. This approach contrasts with market expectations for more aggressive easing. “This is not a committee that feels like it’s in a hurry to cut rates quickly,” he said.
As Powell spoke, U.S. markets responded with the Dow Jones Industrial Average dropping by over 150 points and Treasury yields rising, with the 10-year Treasury note yielding close to 3.8%.
The Fed's September decision to cut rates by 50 basis points marked a "recalibration" of policy, aimed at reflecting current economic conditions more accurately. While inflation has cooled from its highs, Powell pointed to a still-solid labour market and noted that further cooling isn’t necessary to achieve the Fed’s 2% inflation goal.
Inflation, measured by the Fed's preferred personal consumption expenditures price index, stood at 2.2% in August. However, core inflation, excluding volatile items like food and energy, remains higher at 2.7%. Powell acknowledged the persistence of inflation in housing-related costs, which increased by 0.5% in August, but expressed optimism that disinflation will continue.
“Housing services inflation continues to decline, but sluggishly,” Powell said, adding that broader economic conditions are likely to support further cooling of inflation.
Market pricing currently suggests that the Fed will opt for a smaller, quarter-point rate cut at its November meeting, while a more aggressive half-point cut could come in December, depending on the data.