(Washington) US Federal Reserve Chairman Jerome Powell said on Monday that further interest rate cuts were in the works, but suggested they would come at a moderate pace, aiming to support a economy still in good health.
His comments at a National Association for Business Economics conference in Nashville, Tenn., dashed many investors’ hopes that the Fed would implement another draconian half-point rate cut. before the end of the year. The Fed cut its rate by half a point at the start of the month, shifting its focus somewhat from its fight against inflation to focusing on supporting the job market.
“We look at this as a process that will play out over a period of time,” Mr. Powell said in a question-and-answer session, referring to the Fed’s interest rate cuts, “not one thing on which we must move quickly. How quickly we actually do this will depend on the data. »
At their last meeting on September 18, Fed officials cut the rate to 4.8% from 5.3% and planned two more quarter-point cuts in November and December. On Monday, Mr. Powell said that remained the most likely outcome.
“If the economy performs as expected, that would mean two more declines this year,” both of a quarter point, Mr. Powell said.
He also said the rate was moving “toward a more neutral position,” a level that neither stimulates nor restrains the economy. Fed officials set the “neutral rate” at around 3%, well below its current level.
Mr. Powell emphasized that the Fed’s current goal is to support a largely healthy economy and job market, rather than saving an ailing economy or preventing a recession.
“Overall, the economy is in good health,” Mr. Powell said in written remarks. We intend to use our tools to keep her in this position. »
Inflation, by the Fed’s preferred measure, fell to just 2.2% in August, the government reported Friday. Core inflation, which excludes the volatile food and energy categories and generally provides a better read on underlying price trends, accelerated slightly, to 2.7%.
The unemployment rate, meanwhile, fell slightly last month, to 4.2%, from 4.3%, but still remains nearly a percentage point above the year’s low of 3.4%. last, the lowest level in 50 years. Hiring has slowed to an average of just 116,000 jobs per month over the past three months, about half its pace a year ago.
Mr. Powell said the labor market was strong, but “cooling,” and added that the Fed’s goal was to keep unemployment from rising much further.
Over time, the Fed’s rate cuts are expected to reduce borrowing costs for consumers and businesses, including lower rates for mortgages, auto loans and credit cards.
“Our decision […] reflects our growing confidence that with an appropriate recalibration of our policy, labor market strength can be maintained against a backdrop of moderate economic growth and inflation falling sustainably to 2%,” Powell said.
One of the main reasons the Fed is cutting its benchmark rate is because hiring has slowed and unemployment has risen, which threatens to slow the economy as a whole. The Fed is required by law to seek both stable prices and full employment, and Mr. Powell and other policymakers have emphasized that they are now focusing on the twin prongs of employment and inflation , after focusing almost exclusively on combating rising prices for almost three years.