Jerome Powell: Why the Fed Is Taking Its Time on Interest Rate Cuts

Fed Chair Jerome Powell's Cautious Approach to Interest Rates

Federal Reserve Chair Jerome Powell stated that the current strength in the U.S. economy allows the Fed to be deliberate in its decisions regarding interest rates. In a recent speech to business leaders in Dallas, he emphasized:

“The economy is not sending any signals that we need to be in a hurry to lower rates.”

Powell described the domestic growth as “by far the best of any major economy in the world.” He acknowledged that while the labor market appears strong, the recent disappointing job growth in October was largely due to external factors such as storm damage and labor strikes, with nonfarm payrolls only increasing by 12,000.

Regarding inflation, Powell noted progress towards the Fed's 2% goal, despite a slight uptick in consumer and producer prices. He stated:

“Inflation is running much closer to our 2 percent longer-run goal, but it is not there yet. We are committed to finishing the job.”

The cautious tone from Powell resulted in a dip in stocks and a rise in Treasury yields, as traders adjusted their expectations for potential rate cuts in December.

Following a recent quarter percentage point cut, which brought the benchmark borrowing rate to a range of 4.5% to 4.75%, Powell highlighted that the Fed’s focus is now on balancing inflation control with sustaining the labor market. He stated:

“We want to go down the middle and get it just right so that we’re providing support for the labor market but also helping enable inflation to come down.”

The Fed continues to allow proceeds from its bond holdings to roll off its balance sheet without indication of when that process might conclude.