Federal Reserve Chair Jerome Powell Cautions Against Aggressive Rate Cuts
In a speech to the National Association for Business Economics in Nashville, Federal Reserve Chair Jerome Powell tempered expectations of future interest rate cuts, emphasizing that the central bank will take a data-driven approach to balance inflation control with labor market support. Powell’s remarks came less than two weeks after the Fed’s 50-basis-point rate reduction, a move that surprised markets despite being widely anticipated.
The Fed chair characterized the recent rate cut as a “recalibration” of policy, reflecting the shift from fighting surging inflation to supporting a solid labor market. Powell expressed confidence in the economy’s strength and its ability to maintain moderate growth with inflation moving towards the Fed’s 2% target.
While Powell did not provide clear guidance on the next rate move, he reiterated that the Fed has not predetermined its policy course. Futures markets are currently pricing in a quarter-point rate reduction at the November meeting, with a more aggressive half-point cut possible in December.
Inflation remains a key concern, with core prices still running at 2.7% annually. However, Powell believes housing-related costs, a stubborn area of inflation, will eventually decline as rent renewal prices ease. The Fed chair also emphasized the importance of balancing inflation control with labor market support, citing the need for a “neutral stance” in monetary policy.
Powell’s speech was followed by a question-and-answer session with Morgan Stanley economist Ellen Zentner, providing further insight into the Fed’s thinking on interest rates and the economy.
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