US Federal Reserve Chair Jerome Powell said that the bank would lower interest rates “over time,” while again emphasizing that the overall US economy remains on solid footing.
Powell also reiterated his confidence that inflation would continue moving toward the Fed’s 2 percent target, adding that economic conditions “set the table” for a further easing of price pressures.
“Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance, but we are not on any preset course,” Powell said in a speech in Nashville, Tennessee, at the annual meeting of the National Association for Business Economics, adding that policymakers would continue to make decisions meeting-by-meeting based on incoming economic data.
Photo: Bloomberg
A neutral policy is one that neither stimulates nor holds back the economy.
The Fed’s current benchmark rate, which officials last month lowered to a range of 4.75 percent to 5 percent, is widely regarded as still restricting economic activity.
The remarks left open the question of how policymakers will approach the size and pace of interest-rate cuts in the next few months, a crucial matter for investors.
In a question-and-answer session following his speech, the Fed chair said that projections issued by officials alongside their latest rate decision point toward quarter-point rate cuts at the next two meetings, next month and in December.
However, he warned that the US Federal Open Market Committee would make its decisions based, in part, on information it has not yet received.
“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Powell said. “Ultimately we will be guided by the incoming data. And if the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower.”
The central bank last month lowered borrowing costs by half a percentage point, the first reduction since 2020 and a larger-than-usual move. Officials have described the outsize cut as one aimed at protecting a slowing labor market from further weakening.
Powell on Monday described the labor market as solid, but said conditions have “clearly cooled over the past year.”
“We do not believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation,” he said.
Inflation has been tame in the past few months, a trend reinforced by US government data released last week showing the Fed’s preferred gauge of price pressures rose modestly in August.
On a 12-month basis, the personal consumption expenditures price index climbed 2.2 percent.
That has provided officials more confidence that inflation is moving toward their goal, allowing them to place a greater focus on shoring up the labor market.
“Disinflation has been broad based and recent data indicate further progress toward a sustained return to 2 percent,” Powell said.
Still, some policymakers are wary of cutting rates too quickly and potentially reigniting inflationary pressures in the economy.
“Our goal all along has been to restore price stability without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation,” Powell said. “While the task is not complete, we have made a good deal of progress toward that outcome.”
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