Federal Reserve Chairman Jerome Powell said Thursday that strong U.S. economic growth will allow policymakers to sit down and decide how far and how quickly to cut interest rates.
“The economy is not sending a signal that there is an urgent need to cut rates,” Powell said in a speech to business leaders in Dallas. “The strength of the economy we are seeing now allows us to make prudent decisions.”
(Watch Powell’s remarks live here. )
The central bank leader gave an optimistic assessment of the current situation, saying domestic growth was “by far the best among the world’s major economies.”
Specifically, he said the labor market was holding up well despite disappointing job growth in October, which he blamed primarily on storm damage and labor strikes in the Southeast. Nonfarm payrolls increased by just 12,000 people over the same period.
Powell said that while the unemployment rate has risen, it has remained flat in recent months and remains low by historical standards.
Federal Reserve Chairman Jerome Powell speaks in Dallas on November 14, 2024.
Ann Safir | Reuters
On the issue of inflation, he cited “broad-based” progress and noted that Fed officials expect inflation to continue to retreat toward the central bank’s 2% target. But this week’s inflation data showed both consumer and producer prices rising slightly and 12-month interest rates moving further away from the Fed’s mandate.
Still, Powell said the two measures show the Fed’s recommended inflation rate for October is 2.3% and 2.8% excluding food and energy.
“Inflation is very close to our long-term goal of 2%, but we’re not there yet. We’re committed to getting the job done,” Powell said. said it could be “a bumpy road at times.”
Chairman Jerome Powell’s cautious view on rate cuts sent stock prices lower and Treasury yields higher. Traders also lowered their expectations for a rate cut in December.
The remarks came a week after the Federal Open Market Committee cut the central bank’s benchmark borrowing rate by 4.5 percentage points, to a range of 4.5% to 4.75%. This was followed by a half-point reduction in September.
Chairman Powell touted the move as a recalibration of monetary policy, no longer primarily focused on controlling inflation, but with a more balanced goal of preserving the labor market. Many in the market still expect the Fed to continue cutting rates by another quarter of a percentage point in December, followed by several more cuts in 2025.
However, Mr. Powell was not forthcoming about his predictions. The Fed is trying to lower its key interest rate to a neutral setting that neither promotes nor hurts growth, but it is unclear what that end point will be.
“We are confident that with an appropriate readjustment of policy stance, we can sustainably reduce inflation to 2% and maintain economic and labor market strength,” he said. “We are moving policy over time to a more neutral setting, but the path to getting there is not preset.”
Powell added that the calculations to achieve a transition to a neutral rate would be difficult.
“We are oscillating between…the risk of moving too fast and the risk of moving too slow. We will not only support the labor market, but inflation will fall.” “So if the data allows us to go a little slower, that seems like a smart move.”
The Fed has also allowed income from its bond holdings to be removed from its massive balance sheet every month. There is no indication yet as to when this process will end.
