Federal Reserve Chair Jerome Powell spoke on Thursday about the strong U.S. economic growth, which allows policymakers to be patient in deciding on interest rate reductions. Powell mentioned that there is no rush to lower rates as the economy is showing signs of strength, giving them the opportunity to make careful decisions.
Despite a slight increase in consumer and producer prices, inflation is still not at the Fed’s 2% target. Powell emphasized the importance of reaching this goal and acknowledged that it might be a challenging journey. His cautious approach to rate cuts led to a decrease in stocks and an increase in Treasury yields, as traders adjusted their expectations for a December rate cut.
The Federal Open Market Committee recently lowered the benchmark borrowing rate by a quarter percentage point, signaling a shift in monetary policy towards sustaining the labor market in addition to controlling inflation. While markets anticipate further rate cuts in the future, Powell did not provide a clear forecast, highlighting the uncertainty surrounding the neutral rate setting.
Powell emphasized the need to balance the risks of moving too quickly or too slowly in adjusting policy, aiming for a middle ground to support the labor market and bring inflation down to 2%. The Fed’s gradual approach to rate adjustments is aimed at achieving a more neutral policy stance over time, without hindering economic growth.
Additionally, the Fed is gradually reducing its bond holdings each month, but there is no specific timeline for when this process will end. Powell’s remarks underscore the Fed’s commitment to sustaining economic growth and achieving its inflation target, while navigating the challenges and uncertainties of monetary policy adjustments.
