Federal Reserve Chairman Jerome Powell said Thursday that continued economic growth, a strong job market and inflation above its 2% target mean there is no need for the central bank to rush to cut interest rates. He said this meant that the matter could be carefully considered.
Powell's comments echoed growing expectations in financial markets that next year's interest rate cuts would be smaller than Fed officials previously expected, saying he and other policymakers still believe inflation will be “2. “We are on a sustainable trajectory to achieve this goal.'' The central bank plans to shift monetary policy “over time to more neutral settings.”
But Powell said at a Dallas Fed event that the pace of rate cuts is “not pre-set,” adding: “The economy is not sending a signal that we need to cut rates any faster.” The current strength of the economy allows us to make prudent decisions. ”
Fed officials and investors are weighing how the continued strength of the U.S. economy and uncertainty surrounding President-elect Donald Trump's administration's economic policies, particularly tax cuts, tariffs and immigration enforcement, will affect economic growth and inflation. We are currently considering whether this may have a significant impact.
Following last week's election, which may have changed voters' perception of how bad the country's economy is, Powell said things are actually “very good.”
Economic strengths include a still-low 4.1% unemployment rate, a “solid” 2.5% annual growth rate that continues to exceed the Fed's potential outlook, consumer spending driven by rising disposable incomes, and rising business investment. Examples include.
However, key inflation indicators remain above target.
Although the October personal consumption expenditure price index has not yet been released, Powell said recent data reflected in it shows PCE, which excludes food and energy costs, rose 2.8% last month. said. The indicator has stopped.
The Fed uses the headline PCE measurement to set its 2% inflation target (Chairman Powell said the number was likely around 2.3% in October), while 'Core' indicators are seen as a guide to the direction of underlying inflation.
Traders expect the Fed to cut rates another quarter of a point at its Dec. 17-18 meeting, but Trump's election victory combined with a bleak outlook for inflation mean fewer rate cuts next year. I predict that will happen.
Powell said the central bank still believes the disinflationary process will continue, but is also cautious as it monitors factors such as housing costs.
The key aspect of inflation is that “we are moving closer to rates consistent with our target…we are closely monitoring that rate to ensure that it is achieved…inflation is very close to our long-term target of 2%. “But we're not there yet,” he said.
