Federal Reserve Chairman Jerome Powell recently stated in a speech to business leaders in Dallas that strong U.S. economic growth allows policymakers to take their time in determining the pace and scale of interest rate cuts. “The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell remarked, adding that current economic strength gives the Fed the ability to make decisions carefully.
Robust Economic Conditions Allow for Caution
Powell highlighted that the U.S. economy is currently leading among major economies in terms of growth. He noted that, despite a disappointing 12,000 increase in October’s non-farm payrolls, the labor market remains stable. Powell attributed the low job growth mainly to storm-related disruptions in the southeastern U.S. and labor strikes. Additionally, while the unemployment rate has seen a slight rise, it remains at historically low levels.
On inflation, Powell acknowledged the “broad-based” progress made toward reducing inflation and noted that Fed officials expect inflation to gradually move closer to their 2% target. Recent data, however, showed slight increases in both consumer and producer prices, pushing 12-month inflation rates further from the Fed’s mandate. According to Powell, core inflation, excluding food and energy, stood at 2.8%, while headline inflation was 2.3%. He reiterated that inflation is moving closer to the long-term goal, but “it is not there yet, and we are committed to finishing the job.”
Powell’s cautious stance led to a dip in stock markets and a rise in Treasury yields, as traders scaled back their expectations for another rate cut in December.
The Fed’s Monetary Policy Recalibration
Last week, the Federal Open Market Committee (FOMC) lowered its benchmark interest rate by a quarter point, bringing it down to a range between 4.5% and 4.75%. This followed a half-point cut in September. Powell described these moves as a “recalibration” of monetary policy, which now focuses not only on reducing inflation but also on balancing the needs of the labor market. While markets generally expect another quarter-point cut in December and further reductions in 2025, Powell was noncommittal about providing his own forecast for future cuts.
The Fed aims to guide its key interest rate to a “neutral” setting that neither stimulates nor hinders economic growth. Powell emphasized that while the Fed is working toward a more neutral policy stance, the path to achieving it is “not preset.” Additionally, he mentioned that the Fed is currently allowing proceeds from its bond holdings to roll off its large balance sheet each month, with no indication of when this process might end.
Conclusion
Powell’s remarks indicate that despite strong U.S. economic performance, the Fed remains cautious about cutting rates too quickly. The Fed’s goal is to maintain economic growth while gradually bringing inflation down to the 2% target. For forex and financial market investors, monitoring the Fed’s pace of rate cuts and overall economic assessment will be crucial in the coming months.
