Federal Reserve Chairman Jerome Powell said Wednesday that the economy is stronger than it was in September, when the central bank began cutting interest rates, and that policymakers may be wary of cutting rates further.
“We can afford to be a little more cautious as we strive for neutrality,” Powell said at a New York Times event.
His remarks are likely to be the last before a period of silence for Fed officials ahead of the Dec. 17-18 meeting that begins Saturday. Ahead of his appearance, investors were pinning hopes on a third consecutive interest rate cut at the central bank's meeting in two weeks.
Comments this week from Powell's key colleagues point in that direction, with Governor Christopher Waller on Monday refusing to commit in advance to the outcome, even as other lawmakers declined to commit in advance to the outcome. He said he was “leaning” toward lowering rates at the next meeting.
Chairman Powell's comments Wednesday seemed to align with a more cautious camp of policymakers, who last spoke publicly in mid-November, saying the Fed could “carefully” consider cutting interest rates and that they needed to move quickly. It follows almost exactly what I said.
Since then, inflation and employment data, particularly Waller's comments, have significantly increased market expectations for a further 0.5 percentage point cut in the benchmark interest rate, to a range of 4.25% to 4.50%. Powell's comments on Wednesday did little to change that.
The Fed chair said the central bank's decision to move forward amid growing uncertainty about the shape of its broader economic policy next year and evidence of worrisome policy, with some worried that progress on combating inflation has stalled. strongly urged the need to keep options open. A decline in the job market was avoided.
Earlier Wednesday, two other Fed officials, the presidents of regional banks in Richmond and St. Louis, stuck to their approach of keeping all options open.
“We're keeping all options open,” St. Louis Fed President Alberto Moussallem told a Bloomberg monetary policy briefing, adding that the Fed would consider future data before deciding whether a rate cut is necessary in the next two weeks.
Richmond Fed President Thomas Barkin told CNBC's CFO Council that he believes both inflation and employment are heading in the right direction, but is prejudging the outcome as more data is released before the meeting. He said he had no intention of doing so.
The personal consumption expenditure price index, which excludes food and energy costs, a key indicator of inflation, has been flat in the 2.6% to 2.8% range since May, well above the central bank's 2% target. .
Fed officials have always said they feel price pressures are still easing, especially as home prices have slowed in real time but are not yet reflected in lagging government data. However, they will likely want evidence of this before cutting interest rates significantly.
Ahead of Powell's appearance, a major business survey showed some cooling in the vast U.S. services sector, with companies weighing the possibility of new tariffs on imports by the incoming Trump administration early next year. They are worried that this could mean higher prices in the future.
At the same time, car sales in November were the highest in more than three years, showing that consumption remains healthy.
This mix of hot and cold data has made Fed officials wary and reluctant to provide much concrete forward guidance.
For one, Waller avoided a “lean” to cut rates this month, subject to pre-meeting data that could change his stance. In addition to Friday's jobs report, consumer and wholesale inflation data will be released next week, and November retail sales will be released the day the Fed meeting begins.
