Federal Reserve Chairman Jerome Powell said that the central bank of the United States will once again cut interest rates over time and noted that currently, the US economy as a whole remains on solid footing.
Mr. Powell made the mentioned statement during a speech in Nashville at the annual meeting of the National Association for Business Economics. He also stated his confidence that inflation in the United States will continue to approach the Fed’s target of 2%. In this context, Jerome Powell separately said that economic conditions set the table for further easing of price pressure.
The head of the central bank of the United States also noted that monetary policy will become more neutral if the economy evolves according to expectations. At the same time, he underlined that the US financial regulator is not on any preset course. It is worth noting that the Fed is constantly stating the appropriate approach. In a practical sense, this concept implies that officials of the central bank of the United States make decisions regarding changes to the monetary policy strategy, focusing on the latest data on the state of affairs in the space of the US economic system.
It is worth clarifying that a neutral monetary policy is a policy that does not stimulate or restrain the economy.
Jerome Powell’s comments do not provide an answer to the question of what scale and pace the actions of the central bank of the United States will have as part of further lowering the cost of borrowing. These aspects are extremely important for investors.
It is worth mentioning that in September, the Fed cut its benchmark interest rate by a half percentage point. The Federal Open Market Committee voted to lower the federal funds rate to a range of 4.75% to 5%. This easing of monetary policy was the first in the last four years and exceeded preliminary expectations in terms of the scale of the move.
In a Q&A session following his speech in Nashville, Jerome Powell acknowledged that forecasts released by Fed officials after their September decision envisage a quarter-point lowering in borrowing costs at each of this financial institution’s meetings in November and December. At the same time, he noted that the mentioned committee will act partly based on information that has not yet been received. Jerome Powell also said that this committee will not be in a hurry to cut interest rates. According to him, the Fed will be guided by the incoming data. In this context, he stated that the lowering of borrowing costs will be faster if the slowdown in the economy exceeds preliminary expectations. If the slowdown turns out to be less extensive compared to forecasts, the process of cutting interest rates will be characterized by a less intensive pace.
During a speech in Nashville, Jerome Powell also commented on the condition of the United States labor market. He described the relevant state of affairs as solid. Also, according to him, there is no need for further cooling in the labor market to achieve 2% inflation.
Besides, Jerome Powell stated that the goal of the central bank of the United States all along was to restore price stability without the painful increase in unemployment, which frequently accompanied efforts to bring down high inflation. According to him, the relevant task has not yet been completed, but significant progress has already been made towards this outcome.
