Powell says more interest rate cuts are ahead, but Fed is not in a hurry
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Federal Reserve chair Jerome Powell speaks during the National Association of Business Economics (NABE) annual meeting in Nashville, Tenn. on Monday. Photo: Seth Herald/Bloomberg via Getty Images
Federal Reserve chair Jerome Powell said on Monday that interest rates may fall to a level that neither restricts nor boosts the economy, though officials are not in a rush to cut rates.
Why it matters: For now it looks likely that the U.S. economy could avoid a recession as inflation plunges and the labor market remains healthy. Powell signaled that lower rates could help guarantee a so-called "soft landing," but some risks remain.
What he's saying: "Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance," Powell said in Nashville, Tenn. at a conference hosted by the National Association for Business Economics.
- "Neutral" refers to the level of interest rates that does not restrain economic activity, but does not jumpstart the economy either.
- Powell, however, added that the Fed is not on a "preset course."
Between the lines: In a Q&A following the speech, Powell said that recent economic projections show that Fed officials are not in a "hurry" to cut rates, but that could change if the economy shows further signs of slowing.
- "As a base case, we are looking at a process that will play out over some time — not a process we need to go fast on," Powell said.
- But if the economy were to deteriorate more than expected, "we will do what it takes in terms of the speed at which we move," Powell said.
Catch up quick: The Fed cut interest rates earlier this month, the first such move since the onset of the pandemic in 2020. It lowered interest rates by a larger-than-expected half percentage point, though rates are still higher than in the 2010s.
- With that cut came an official pivot from the central bank. Officials are paying more attention to the softening job market with less focus on the price pressures that have been top of mind since 2022.
- Data last week confirmed inflation is approaching the Fed's 2% target.
The big picture: The economy looks close to achieving the rare "soft landing" —taming inflation without a painful rise in joblessness, Powell said.
- "Our goal all along has been to restore price stability without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation," Powell said in his remarks.
- "While the task is not complete, we have made a good deal of progress toward that outcome."
What to watch: As for what the Fed will do at its next policy meeting in November, Powell referred to economic projections that suggest two more rate cuts this year.
- But any final decision rests on economic data released between now and then, including a labor report coming this Friday.
Editor's note: This story has been updated with additional comments from Jerome Powell.
