Federal Reserve Chairman Powell said on Monday that the U.S. economy seems to be prepared for a continued slowdown in inflation, allowing the Fed to continue cutting interest rates over time. However, he clarified that the recent 50 basis point rate cut should not be interpreted as a signal that future cuts will be as aggressive, in reality, the next cuts will be smaller.
At a conference of the National Association for Business Economics in Nashville, Tennessee, Powell stated that overall, the U.S. economy remains strong. He also reiterated his belief that the inflation rate will continue moving towards the Fed’s 2% target.
“Looking ahead, if the economy evolves as we expect, the policy will move towards a more neutral stance over time,” Powell said. “But we are not on a preset course.”
Neutral policy refers to policies that neither stimulate nor restrain the economy.
Powell emphasized that risks are two-sided, and policymakers will continue to make decisions based on the economic data received in successive meetings.
“This is not a committee that is eager to rapidly cut rates,” he said during the question and answer session following his speech. “If the economy performs as we expect, it means there will be more rate cuts this year, totaling another 50 basis points.”
However, he also stressed, “Ultimately, we will be guided by the data we receive. If the slowdown in the economy exceeds our expectations, we can accelerate the pace of rate cuts; if the slowdown is less than expected, we can slow down the pace of rate cuts.”
The Fed announced a 50 basis point rate cut during its meeting on September 17-18, lowering the policy interest rate range from its 20-year high of 5.25%-5.50% maintained for 14 months to the current range of 4.75%-5.00%.
Powell stated on Monday that the labor market remains strong but has “noticeably cooled” over the past year. He also mentioned that the focus for Fed officials is to bring rates to a level that neither stimulates nor slows down economic activity. He reiterated the views recently put forward by some of his colleagues, indicating that as long as the economy continues expanding steadily, there is no rush to cut rates.
With inflation rates significantly lower over the past two years, officials have shifted focus to prevent the previous rate hikes from further weakening the U.S. labor market. Powell said, “We believe we do not need to see a further cooling of labor market conditions to achieve a 2% inflation rate.”
Futures market pricing indicates that the Fed is more likely to proceed cautiously and approve a 25 basis point rate cut at the meeting scheduled for November 6-7.