Following last week's Federal Reserve decision to reduce interest rates by 0.25%, Chair Jerome Powell indicated that there is no immediate urgency to lower rates further, given the robust state of the economy. Speaking at an event in Dallas, Texas, Powell stated, "The economy is not signaling a need for rapid rate reductions. Its current vigor allows us to make decisions with caution."
In his commentary on the interest rate outlook, Powell characterized the U.S. economy's performance as "remarkably good." He emphasized that while the labor market remains robust, it no longer significantly fuels inflationary pressures.
Powell highlighted that with the labor market cooling and notable improvements in supply conditions, inflation is gradually aligning with the central bank's long-term target of 2%. This progress facilitated the recent 25 basis point rate cut, following a previous 50 basis point reduction in September.
"We are confident that with a careful adjustment of our policy stance, the economy and labor market will stay strong, and inflation will consistently decline to 2%," Powell affirmed.
Powell acknowledged the dual risks to the Fed's employment and inflation objectives, noting that precipitous rate cuts might impede inflation progress, while overly slow adjustments could weaken economic activity and job growth.
"We are shifting policy towards a more neutral stance over time, but this path is not predetermined," Powell explained. "Ultimately, the policy rate's trajectory will depend on evolving economic data and outlook."
The next Federal Reserve monetary policy meeting is set for December 17-18. According to CME Group's FedWatch Tool, there is currently a 67.3% likelihood of another quarter-point rate cut by the central bank.