Federal Reserve Chairman Jerome Powell said Wednesday that the central bank might have started cutting interest rates in late July if it had known the labor market would cool so quickly.
“If I had received the July report before the meeting, would I have lowered rates? Probably I would have,” Powell said at a news conference after the central bank cut its key overnight interest rate by 50 basis points — more than most analysts had expected. “We didn't make that decision, but we probably would have.”
But Powell said the Fed's policy decisions announced Wednesday do not mean the central bank is becoming obsolete, but rather signal its determination not to become obsolete.
The Labor Department's July employment report, released just days after the Fed's July 30-31 meeting, showed that the unemployment rate rose to 4.3% and job growth slowed.
The subsequent August report showed the unemployment rate had fallen by 4.2 percentage points, but contained ample further evidence of an economic slowdown.
“The Fed seemed to want to make up for what it didn't do in July,” Oscar Munoz, an economist at TD Securities, said after the latest policy decision.
Munoz said the Fed will not panic going forward, a point echoed by Chairman Powell in his post-meeting press conference.
Fed policymakers are roughly evenly split on whether they feel they need to cut interest rates by another 50 basis points at their final two meetings this year, or whether they should stop there and cut rates less than that.
Powell said the labor market has been strong so far and inflation is on track to move closer to the Fed's 2 percent target, and Wednesday's rate cut was an attempt to keep it that way.
“The Fed doesn't want to admit it made a policy mistake, but after one meeting of delays, some of its initial big rate-cutting decisions are likely to be overdue,” said Ryan Sweet, chief U.S. economist at Oxford Economics. “The September decision is a preemptive strike to improve the central bank's chances of a successful 'soft landing.'”
