Athira Sethu
Kochi, 15 November 2024
Federal Reserve Chair Jerome Powell said that the US economy remains in good shape, meaning it’s not a reason for the central bank to hurry into cutting interest rates. Speaking in Dallas, Powell emphasized that the economy is strong and doesn’t at all show signs of needing a quick rate cut. He said that the Fed will be careful and gradual as they monitor inflation.
Now that the Fed started cutting interest rates in September by half a percentage point, and now another quarter point last week, based on what Powell said, it suggests that it will continue to tread cautiously toward even more rate cuts if inflation is still within acceptable bounds.
Economists believe that the Fed will halt the rate cuts by January and will only lower it a few times next year. Following Powell’s speech, traders scaled back their expectations of the December rate cut with the yields on two-year Treasuries increasing.
Powell further added that there is some uncertainty regarding the exact positioning of the neutral interest rate. That is, where the economy is not overstimulated and, at the same time, is neither kept to be slow. He specifically stated that the Fed is one of the players who should be very cautious when approaching this neutral level so as not to err too much.
Inflation has been lagging to reach the Fed’s 2% target. For now, the core inflation rate — excluding food and energy — is stable at 0.3% for the third month running. Powell said it has indeed moved in the right direction but it’s not there yet.
Apart from inflation, new government policies in the wake of new taxes or trade barriers propagated by President-elect Donald Trump were what Powell spoke about. According to him, it is still too early to respond to such kinds of changes while at the same time stating that the Fed needs more time to take grip of their full effects on the economy.
Overall, Powell believes that the economy was solid both in growth and resilient labor markets. Additionally, he emphasized that increased productivity is keeping inflation under control and will be important for the long-term health of the economy.
