Federal Reserve Chair Jerome Powell indicated on Monday that there could be more interest rate cuts on the horizon, depending on how the economy progresses. Wall Street investors and economists are speculating whether the Fed will follow up on its recent large half-point cut with further reductions in the upcoming November or December meetings. During their September 18 meeting, Fed officials outlined plans for two more quarter-point rate cuts at the final meetings of the year.
In a speech before the National Association for Business Economics in Nashville, Tennessee, Powell acknowledged that the U.S. economy and job market are in good shape. He mentioned that the Fed is adjusting its key interest rate, which currently stands at about 4.8%, aiming to move towards a more neutral stance that neither stimulates nor hinders the economy. Powell stressed that the Fed’s objective is to support the current healthy economy and job market, rather than intervening in a struggling economy or recession prevention.
Regarding inflation, the government reported that it dropped to 2.2% in August, with core inflation slightly increasing to 2.7%. The unemployment rate went down to 4.2%, despite being higher than the 3.4% low reached last year. Hiring has slowed to an average of 116,000 jobs per month in the past three months, half the pace compared to a year ago. Powell mentioned that while the job market remains solid, it is cooling, and the goal of the Fed is to prevent a rise in unemployment rates.
The Fed’s decisions to cut rates are expected to lower borrowing costs for consumers and businesses, including mortgages, auto loans, and credit cards. Powell expressed confidence that these rate reductions, along with adjustments to the policy stance, will lead to sustainable economic growth and inflation lowering to 2%.
Following the recent rate cut, various policymakers have shared their perspectives through speeches and interviews. While some advocate for rapid additional cuts, others approach this matter more cautiously. For example, Austan Goolsbee from the Fed’s Chicago branch predicts the implementation of numerous rate cuts in the upcoming year, whereas Tom Barkin of the Richmond Fed supports a more measured approach, hinting at reducing the central bank’s key rate partially to a neutral setting rather than all at once.
The Fed’s decision to cut rates is influenced by the slowdown in hiring and the increase in unemployment, both of which pose a risk to the broader economy. Powell and other policymakers emphasize a shift towards dual focus on jobs and inflation, departing from the previous singular focus solely on combating price increases for nearly three years.
