Powell says there is no need for the Fed to accelerate rate cuts given the strong economy

DALLAS – Continued economic growth, a strong job market, and inflation that remains above its 2% target means the Federal Reserve does not need to rush to cut interest rates, Fed Chairman Jerome Powell said Thursday in remarks that could point to remaining borrowing costs. high for a long time in homes and businesses alike. Powell confirmed that he and other policymakers still view inflation as a “sustainable path to 2%” that will allow the US central bank to move monetary policy “over time to a neutral position” that is not aimed at slowing the economy. the economy.

But what that neutral rate would be in the current environment and how quickly the Fed would try to reach it all remains up in the air, especially as central banks assess the continued strength of the economy and the impact of incoming Trump administration policies, emerging. higher wages for young migrant workers, can have an impact on economic growth and inflation.

Powell largely deflected questions about whether new tariffs on retail or managing the economy with fewer workers could change the path to inflation the central bank is trying to lower.

“We can do the math. If there are fewer workers there will be less work done,” said Powell, before adding “this gets me into political issues that I really want to stay away from as much as possible.”

So far, he said the economy isn’t sending any signs of stress that could prompt the Fed to accelerate rate cuts, and on the contrary “if the data allows us to go slower, that seems like a smart thing to do.”

“The economy is not sending any signs that we should rush to lower rates. The strength we’re seeing right now in the economy gives us the strength to approach our decisions carefully,” Powell said in prepared remarks delivered at the Dallas Fed event.

Fed officials and investors are looking at how the continued strength of the US economy and uncertainty about the economic agenda of the administration of President-elect Donald Trump, especially regarding tax cuts, tariffs and reducing immigration, may affect economic growth and inflation.

After Powell’s comments prepared to reveal gains in short-term Treasury bonds rose, and traders paid money to bet on how much the Fed might cut rates this cycle. The central bank cut its benchmark overnight rate to a range of 4.5% to 4.75% at a meeting last week. As of September officials saw the rate falling to 2.9% in 2026, but investors now see it staying as high as 3.9%.

“We still think the FOMC is likely to cut in December but we think today’s speech opens the door to dialing back the pace of tapering as soon as January,” wrote JP Morgan chief US economist Michael Feroli.

THERE IS NO OBVIOUS ANSWER
During a question-and-answer session, Powell said that while Fed staff may be beginning to be confused about the potential impact of tariffs and other campaign proposals from Trump, it will take time to understand, and it will not be clear until new rules or executive orders. approved or issued.

“The answer is not clear until we see the actual policies,” Powell said. “I don’t want to guess… We’re still months away from re-managing.”

Still, he noted that economic conditions are different now than when Trump began his first term eight years ago, when there was inflation, low growth and low productivity.

The recent surge in immigration, for example, is “made for the economy” during a post-pandemic labor shortage, Powell said.

More broadly, following last week’s election that may have opened up voters’ views on the country’s economic woes, Powell said the current situation is “pretty good.”

Economic forces include a low unemployment rate of 4.1%, growth at what Powell called a “steady pace” of 2.5% for the year that remains above the Fed’s estimates of its core strength, consumer spending driven by rising disposable incomes, and investment growth business finance.

However key measures of inflation are still above target.

The consumer price index for October has not yet been released, but Powell said the latest data on it showed that PCE excluding food and energy costs rose 2.8% last month – marking the fourth straight month in which inflation progressed that way. .

The Fed uses the headline PCE reading to set its inflation target of 2% — Powell said that figure was probably around 2.3% in October — while the “core” rate is considered a guide to lower inflation.

Traders still expect the Fed to cut interest rates by another quarter of a percentage point at its Dec. meeting. 17-18, and Powell said the central bank still has faith in continued disinflation.

But policymakers also remain cautious.

Headlines of inflation “returned to levels close to our targets … We’re watching closely to make sure they do … Inflation is very close to our long-term goal of 2%, but it’s not there yet,” he said. – Reuters