Federal Reserve Chairman Jerome Powell said the central bank’s policymakers are in no rush to cut interest rates to the so-called “neutral rate” and feel comfortable making rate adjustments as it looks to bring inflation to its target.
At an event at the Dallas Regional Chamber, Powell said in his opening remarks, “We are moving policy over time to a more neutral position but the path to get there is not predetermined and when considering additional adjustments to the target range for the federal funds rate, we will carefully evaluate incoming data and expectations.” evolving and balancing risks.
Powell explained: “The economy is not sending any signals that we need to rush to lower rates… The strength that we currently see in the economy gives us the ability to handle our decisions carefully.” “Ultimately, the path of the interest rate will depend on how the incoming data and expectations develop.” “Economic”.
In a question-and-answer session with Washington Post columnist Katherine Rampell, Powell was asked about how the Fed knows when it has reached the neutral rate and his previous comments that “we know it by its actions.”
Powell continued: “We are very aware that there is no theoretical or empirical way to arrive at an estimate of the neutral interest rate that you can have a lot of confidence in,” he said. “So what justifies that? It justifies moving with caution.”
Powell stressed that the Fed views its current policy as restrictive, though he cannot say exactly how restrictive it is, because “the economy has been overheating and now it has cooled down pretty much as we had hoped, which is that we have seen a gradual slowdown in the labor market, and inflation has come down a lot.” “The job market has not completely stabilized, but it is in a good place.”
He continued: “We have begun the process of lowering interest rates and returning to neutral. I think the right way to find this level is carefully and patiently,” he explained. “You don’t want to move too quickly – you may have to move quickly because if the labor market starts to deteriorate seriously “We would love to move forward with that, but we don’t see it.”
“I think that in this situation, we have to be cautious and move cautiously, and as we get into the range that is close to the reasonable range of neutral levels, it may be necessary to slow down the pace of what we are doing just to increase our chances of success in that,” Powell said.
The Fed raised interest rates to the highest level since 2001 — in a range of 5.25% to 5.5% — in response to the highest inflation rate in 40 years, which peaked at 9.1% in June 2022 after pandemic-related supply chain disruptions and significant levels of federal spending aimed at… Mitigating the impact of Covid.
At its last two meetings, the Fed cut the federal funds rate by 50 basis points in September, followed by a 25 basis point cut last week, leaving it in a range of 4.5% to 4.75%. Inflation measures have slowed closer to the 2% target, with the Consumer Price Index (CPI) at 2.6% in October and the Fed’s preferred personal consumption expenditure index (PCE) at 2.1% in September, the latest reading.
Powell was asked if he plans to continue his service on the Fed’s Board of Governors after his term as chairman ends, which ends in May 2026. His term on the Board of Governors runs until January 2028: “I would just say, I will certainly serve until the end of my term, and that’s all “What I’ve decided really is and how I think about it. We’re very focused on getting the job done for the American people, and that’s enough work to focus on.”
