Economic Strength Allows Fed to Tread Carefully, Says Chair Powell
Federal Reserve Chair Jerome Powell stated Thursday that there’s no need for the central bank to rush into lowering its benchmark interest rate, citing a resilient economy that supports a cautious approach to rate decisions. Speaking to business leaders in Dallas, Powell remarked, “The economy is not sending any signals that we need to be in a hurry to lower rates.”
Powell added that the strength of the current economic landscape allows the Fed to proceed thoughtfully with its policy decisions. Following his comments, market expectations for a December rate cut declined, with traders in the federal-funds futures market adjusting the likelihood of a quarter-point rate cut from 72.2% to 58.9%. The odds of a January cut also remain low, at just 23%.
U.S. stocks saw increased losses after Powell’s remarks, with the Dow, S&P 500, and Nasdaq each slipping further below their recent record highs. Krishna Guha, vice chairman of Evercore ISI, noted Powell’s “cautious and, at the margin, hawkish tone,” emphasizing that a December rate cut is not a certainty. Guha highlighted that the Fed’s policy trajectory depends on evolving economic data and risk assessments.
While the Fed has cut rates twice recently—to a range of 4.5% to 4.75%—Powell signaled that although the central bank remains open to further rate cuts, the timeline and path forward will be data-driven rather than preordained. He emphasized that given the current economic uncertainties, it’s not the time to offer extensive forward guidance to markets.
Powell reiterated the Fed’s dual focus on supporting economic growth and sustaining the job market, aiming to avoid a recession. Carl Weinberg, chief economist at High Frequency Economics, observed that Powell’s strategy of gradual easing may help balance these goals. Ultimately, the Fed’s target is to reach a “neutral” rate—neither stimulating nor restricting demand. However, the specific neutral rate remains a topic of debate within the Fed, with a median projection currently at 2.9%.
Powell noted that inflation is moving toward the Fed’s 2% target, albeit on a “sometimes bumpy” path, while the labor market has largely returned to levels aligned with the Fed’s maximum employment objective. Despite economic strength, Powell believes the current benchmark rate may still be slightly restrictive, though Wall Street analysts remain divided on this view.
