Federal Reserve Chairman Jerome Powell said on Thursday that strong U.S. economic growth will allow policymakers to comfortably decide how much and how quickly to cut interest rates.
“The economy is not sending any signals that we need to rush lower interest rates,” Powell said in a speech to business leaders in Dallas. “The strength we are seeing in the economy right now allows us to make decisions with caution.”
(Watch Powell’s live broadcast here.)
In an upbeat assessment of the current situation, the central bank leader said domestic growth was “by far the best of all major economies in the world”.
Specifically, he said the labor market remains strong despite disappointing job growth in October, which he attributed largely to storm damage and worker strikes in the Southeast. Nonfarm employment increased by only 12,000 during the same period.
Powell noted that the unemployment rate has been rising but has leveled off in recent months and remains low by historical standards.
On inflation, he cited “broad-based” progress and noted that Fed officials expect inflation to continue returning to the central bank’s 2% target. However, this week’s inflation data showed both consumer and producer prices rising slightly, with 12-month rates further diverging from the Fed’s directive.
However, Powell said the two indexes showed October inflation as measured by the Fed’s preferred measure of 2.3%, and inflation excluding food and energy was 2.8%.
“Inflation is very close to our long-run goal of 2 percent, but it’s not there yet. We’re committed to getting that done,” Powell said, noting that getting there could be “a bumpy road at times.”
A week ago, the Federal Open Market Committee cut the central bank’s benchmark borrowing rate by a quarter of a percentage point, bringing it to a range of 4.5%-4.75%. This follows a half-percentage-point cut in September.
Powell described the measures as a recalibration of monetary policy that no longer needs to focus primarily on curbing inflation and now also has the goal of maintaining a balanced labor market. The market generally expects the Fed to cut interest rates by another 25 percentage points in December and then cut interest rates several more times in 2025.
However, Powell was noncommittal in offering his prediction. The Fed is seeking to cut its key interest rate to a neutral level that neither boosts nor stifles economic growth, but is unsure what the end point will be.
“We believe that by appropriately adjusting our policy stance, the strong momentum in the economy and labor market can be maintained and inflation can sustainably fall to 2%,” he said. “Over time, we are shifting policy to a more A neutral environment. But the path to get there is not preset.”
The Fed is also allowing proceeds from its bond holdings to be stripped off its massive balance sheet each month. There is no indication when the process will end.
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