Powell Signals Fed Will Continue Rate Cuts, But Path Isn’t Set in Stone

Federal Reserve Chairman Jerome Powell indicated on Monday that the Fed will continue to lower interest rates towards a more neutral stance. However, he emphasized that the future trajectory of rates is not predetermined and that monetary policy will be evaluated on a meeting-by-meeting basis.

“Looking ahead, if the economy develops as expected, our policy will gradually shift towards a more neutral stance,” Powell stated in prepared remarks prior to his appearance at the National Association for Business Economics.

A neutral interest rate level neither promotes nor restricts economic growth. Powell noted that the future path of interest rates is not on “any preset course,” and acknowledged that the risks to the Fed’s goals of stable inflation and maximum employment are balanced.

Voting members of the Fed “will continue to make our decisions on a meeting-by-meeting basis,” Powell reiterated, highlighting that policy decisions will be guided by incoming economic data.

Powell expressed a more optimistic outlook regarding the possibility of achieving a soft landing and avoiding an economic recession. He mentioned that the disparity between gross domestic income (GDI) and GDP over the past year had raised concerns about the economy’s strength, but this gap has recently narrowed, alleviating some growth apprehensions. “That’s been a downside risk we’ve been monitoring… but there’s now no gap between the two,” he stated. “This removes a downside risk to the economy.”

This announcement follows the Fed’s recent decision to cut rates by 50 basis points, with the rationale being that easing monetary policy would help maintain strength in the labor market and continue to drive inflation down to the 2% target.

Despite these adjustments, Powell asserted that the labor market remains robust and that there is no urgent need for further cooling in labor market conditions to achieve the 2% inflation target. “Disinflation has been widespread, and recent data indicate further progress towards a sustained return to 2%,” the Fed chairman concluded.