Federal Reserve Chairman Jerome Powell hinted at more interest rate reductions on Monday. He said these adjustments will happen gradually to protect a healthy economy.
He said this at a NABE meeting in Nashville, Tennessee. The Federal Reserve announced it would not drop its benchmark rate by another substantial half-point before the year’s end, disappointing investors. The Federal Reserve cut its rate by a larger-than-normal half-point this month. This move is due to a desire to emphasize jobs over inflation.
Following his comments, the S&P 500 stock index as a whole dropped 0.6%, although it rebounded 0.4% to end the day higher. In a recent Q&A, Powell said, “We’re viewing this as a process that will unfold over some time.” Don’t hurry into it. Our progress and knowledge will determine the pace.
Economists already believe that Friday’s jobs report will have a big impact on the Fed’s policy choices. If unemployment rises significantly or hiring slows, the government may lower interest rates later this year.
At their meeting on September 18, Fed officials decided to lower their rate from 5.3% to 4.8%. They planned to cut rates by a quarter-point in November and December. Powell said Monday that this is the likely outcome.
“Should the economy perform as anticipated, that would indicate two additional cuts this year,” he stated, referring to each quarter point.
Powell stated in his prepared speech that the United States economy and employment market are healthy. He stressed that the Fed is “recalibrating” its key interest rate rather than cutting it quickly in a crisis.
He added that the rate is going “to a more neutral stance,” meaning it won’t help or hurt the economy. The “neutral rate” set by the Federal Reserve is 3%, far less than the current rate.
Powell stressed that the Fed’s main goal is to support a strong economy and job market, not save it or prevent a crisis. “In general, the economy is doing well,” Powell stated. “We will make use of our tools to keep it in place.”
The government said Friday that the Federal Reserve’s inflation index fell to 2.2% in August. Core inflation, excluding volatile areas like energy and food, rose to 2.7%. This better represents pricing fluctuations.
The unemployment rate fell from 4.3% to 4.2% last month. However, it is about a percentage point above last year’s record low of 3.4%. Three months previous, monthly job increases averaged 116,000. Compared to last year, this pace is 50% slower.
Over time, the Fed’s rate cuts should slash borrowing costs for people and companies. Mortgage, auto, and credit card rates should fall.
Powell stated, “Our choice shows our growing confidence that we can maintain strength in the labor market while observing moderate economic expansion, with the necessary modifications to our policy stance and a steady decline in inflation towards 2%.”
Numerous decision-makers made speeches and participated in interviews following the Fed’s interest rate cut. Some favor fast reduction, while others urge a methodical approach. The Fed may conduct “numerous rate cuts in the coming year.” Chicago Federal Reserve President Austan Goolsbee.
Last week, Richmond Fed president Tom Barkin told The Associated Press that the benchmark rate should be decreased “somewhat.” He said he wasn’t ready to lower it to neutral yet.
The Federal Reserve is lowering its interest rate due to a slowdown in hiring and rising unemployment, which could cause a broader economic slump. The Fed must pursue price stability and full employment by law. Powell and other officials have emphasized that they are refocusing on jobs and inflation after nearly three years of fighting price hikes.
