Fed Sees No Urgency to Cut Rates as Economic Confidence Rises, Powell Says

By Howard Schneider

NASHVILLE, Tennessee – Federal Reserve Chair Jerome Powell stated on Monday that the U.S. central bank is likely to continue with quarter-percentage-point interest rate cuts moving forward and is not “in a hurry” to implement drastic changes, following new data that has bolstered confidence in ongoing economic growth and consumer spending.

“This is not a committee that feels like it is in a hurry to cut rates quickly,” Powell remarked at a National Association for Business Economics conference. This comes despite an earlier larger-than-expected half-percentage-point reduction during the Federal Open Market Committee’s meeting on September 17-18.

“We will do what it takes in terms of the speed with which we move,” Powell said, as the Fed aims to navigate inflation toward its 2% target while sustaining a low unemployment rate.

Discussions around the possibility of another substantial cut in response to the rapid decline in inflation since last year have been ongoing. Powell indicated that the current plan is for two quarter-percentage-point reductions by the end of the year, as outlined in policymakers’ updated economic projections released earlier this month.

“If the economy evolves as expected, that would be two more cuts by the year’s end,” leading to a total decrease of half a percentage point, he informed the audience.

Powell’s remarks were rooted in confidence about continued economic growth, supported by recent data revisions that increased estimates for income, spending, and savings, and reflected faster growth in gross domestic income (GDI) than previously thought.

The adjustments to government reports have alleviated concerns about the economy’s downside risk and suggest that consumer spending may continue at a healthy pace, Powell noted. GDI serves as an alternative measure of economic growth, like gross domestic product, but focuses on income rather than output. The convergence of GDI with output estimates has helped quell worries regarding economic performance.

“The economy is in solid shape,” Powell declared.

As he spoke, financial markets began to lean more toward expectations that the Fed would reduce rates in quarter-percentage-point increments, likely maintaining this pace through the middle of the next year.

The ultimate decision will still depend on forthcoming data, particularly the employment reports for September and October, which will be released just days prior to the Fed’s meeting on November 6-7.

Following Powell’s comments, stock markets eased slightly, although major indices ended the day higher, and U.S. Treasury yields rose.

Powell expressed optimism regarding a potential slowdown in inflation, indicating that such a trend would allow the Fed to stabilize interest rates over time. “Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2%,” he stated. He emphasized that decisions would be made on a meeting-by-meeting basis, reflecting the dual risks present in the economic landscape.

Currently, the Fed’s policy rate is in the range of 4.75%-5.00%. Projections from the recent meeting indicated that policymakers expect the rate to drop further to between 4.25%-4.50% by the year’s end, and down to the range of 3.25%-3.50% by the end of 2025, with policy easing potentially concluding in 2026 around a long-term neutral rate of 2.9%.

Powell’s mention of “two-sided” risks signals the ongoing debates among Fed officials as new data comes in. For instance, in an interview, Atlanta Fed President Raphael Bostic noted he anticipated an orderly pace of rate cuts but would consider a larger reduction if upcoming employment reports indicate significant job growth weakening.

Despite the recent inflation data showing a headline rate of 2.2%, Powell remains optimistic about “broader economic conditions” paving the way for further disinflation.

He noted that while goods prices are decreasing, inflation in the service sector is returning to pre-pandemic levels, and housing inflation growth remains slow, which should add to the downward trend in housing services inflation.

The job market is described as “solid,” with the unemployment rate at a low 4.2%, indicating a sustainable long-term level given inflation targets.

“Overall, the economy is in solid shape; we intend to use our tools to keep it there,” Powell concluded, remarking on the Fed’s significant progress in lowering inflation without triggering a major increase in unemployment.