:max_bytes(150000):strip_icc()/GettyImages-2175029649-ba945a037c14424b8fd8d2fa50a8c78b.jpg "The Federal Reserve Is In No Rush To Cut Rates, Powell Says")
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Key Takeaways
- The Federal Reserve is in no hurry to cut interest rates, Fed chair Jerome Powell said Monday,
- Powell highlighted recent economic data showing the economy performing well, reducing the urgency of lowering interest rates to bolster it.
- The Fed chair said rate decisions would be made based on incoming data-there are several major reports due before the Fed’s next policy meeting in November.
- Earlier this month, the Fed began reducing interest rates in an effort to boost the economy, as concerns about inflation have receded.
From the point of view of the Federal Reserve, the economy is running smoothly. Now, the central bank’s goal is to keep it that way.
In public remarks Monday, Federal Reserve Chair Jerome Powell framed the central bank’s decision to cut rates earlier this month as a move to keep a strong economy on sure footing rather than to rescue one that is faltering. Powell’s comments, delivered at a meeting of the National Association for Business Economics in Nashville, were his first on monetary policy since the Fed’s landmark decision to sharply cut its benchmark interest rate on Sept. 18.
Financial market participants took Powell’s comments as throwing cold water on expectations for another sharp rate cut when the Fed’s policy committee next meets in November. Following Powell’s remarks, markets were pricing in a 36% chance the Federal Open Market Committee would cut its benchmark fed funds rate by 50 basis points at that meeting, as opposed to a smaller 25-point cut, according to the CME Group’s FedWatch Tool, which forecasts rate movements based on fed funds futures trading data. The previous business day, the tool put the odds of a larger cut at 53%.
“This is not a committee that feels like it’s in a hurry to cut rates quickly,” Powell said. “It’s a committee that wants to be guided…by the incoming data.”
Economy Headed For Soft Landing
Since the Fed’s Sept. 18 meeting, economic data has reinforced the case that the U.S. economy is recovering smoothly from the burst of high inflation that took hold in 2021, prompting the Fed to rapidly raise its benchmark interest rate to discourage borrowing and spending. Inflation has cooled nearly to the Fed’s goal of a 2% annual rate, while the economy has stayed humming along—a scenario that economists call a “soft landing” as opposed to an economic crash.
Powell pointed to a report on consumer spending released last week that included revisions to the previous year’s data. The revisions showed U.S. consumers have been making, spending and saving more money than previously thought. The data suggests that consumer spending—the main engine of the U.S. economy—is holding up well, he said.
At the same time, the Fed is keeping a close eye on incoming economic data when planning its next interest rate moves. The central bank is trying to balance two priorities: keeping inflation under control and keeping unemployment from rising severely. Since 2022, the Fed has kept interest rates high, making all kinds of loans costlier, to cool the economy and quash inflation. With inflation having fallen significantly and employers having cut back on job openings, the Fed is now cutting interest rates.
Powell said upcoming economic reports, including data on the labor market, would guide the committee’s decision making.
“If the economy slows more than we expect, then we can cut faster,” he said. “If it slows less than we expect, we can cut slower. And that’s really what’s going to decide it.”