Federal Reserve Chair Jerome Powell indicated Thursday (Friday AEDT) that the central bank intends to proceed cautiously with interest rate cuts over the coming months.
Addressing the Dallas audience in prepared remarks, Powell highlighted the persistence of inflation, suggesting that officials aim to observe its trajectory before making substantial policy adjustments.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
Economists anticipate that the Fed may introduce another quarter-point rate cut in December, following a recent reduction of a similar size and a half-point cut in September.
Powell gave an optimistic assessment of the U.S. economy, highlighting it as "by far the best of any major economy in the world".
He specifically noted that the labour market remains robust despite October's disappointing job growth, largely attributed to storm impacts and strikes in the Southeast, with payrolls growing by just 12,000.
On inflation, Powell reported "broad-based" progress toward the Fed's 2% target. Although recent inflation data revealed a slight rise in consumer and producer prices, Powell noted that by the Fed’s preferred measure, inflation hit 2.3% in October, or 2.8% excluding food and energy.
He added, “Inflation is running much closer to our 2 percent longer-run goal, but it is not there yet. We are committed to finishing the job,” acknowledging that the road ahead may be “on a sometimes-bumpy path”.
Powell’s cautious stance on further rate cuts led to declines in stocks and increased Treasury yields.
Last week, the Federal Open Market Committee lowered the benchmark rate by a quarter-point, to a range of 4.5%-4.75%, following a half-point cut in September. Powell described these moves as part of a “recalibration” of monetary policy, shifting from a sole focus on inflation to a more balanced approach that also supports employment stability.
Looking forward, while markets still anticipate another quarter-point cut in December and further cuts in 2025, Powell refrained from specifying future actions. He indicated that the Fed’s goal is to guide rates towards a “neutral setting” that neither stimulates nor restrains economic growth.
While Fed officials signalled in September the potential for four rate cuts in 2025, market data tracked by CME FedWatch suggests that Wall Street traders expect only two cuts.
Meanwhile, the Fed continues reducing its balance sheet by allowing proceeds from bond holdings to expire each month, without providing a timeline for ending this process.