Powell says Federal Reserve is in no ‘hurry to cut rates quickly’

Simone Del Rosario

Experts say the greatest threat to the economy in the next year isn’t the upcoming election or even conflict in the Middle East or Ukraine. More professional forecasters say a monetary policy mistake by the Federal Reserve poses the greatest downside risk.

This month, the Federal Reserve adjusted its policy rate for the first time in 14 months. The Fed cut its benchmark interest rate by 50 basis points in a supersized kickoff to the rate-cutting cycle. 

But in a speech Monday in Nashville, Fed Chair Jerome Powell said not to read too much into the size of that first cut.

Jerome Powell: This is not a committee that feels like it’s in a hurry to cut rates quickly. It’s a committee that wants to be guided. Ultimately, we will be guided by the incoming data, and if the economy slows more than we expect, then we can cut faster. If it slows less than we expect, we can cut slower. And that’s really what’s going to decide it.

Simone Del Rosario: The Fed’s goal is a soft landing, where they raise rates high enough to bring down inflation without triggering a recession. And so far, they’ve reached the rate-cut part of the equation without a recorded recession.

Jerome Powell: Our design overall is to achieve disinflation down to 2% without the kind of painful increase in unemployment that has often come with this inflation processes. That’s been our goal all along. We’ve made progress toward it. We haven’t completed that task. 

Simone Del Rosario: The Fed’s preferred inflation gauge is down to 2.2%, a hair above its 2% target, while core inflation is higher at 2.7%. 

Meanwhile, the unemployment rate climbed to 4.2% from the 3.4% low hit in January 2023. 

Federal Reserve board members and bank presidents project unemployment will rise to 4.4% by the end of this year and next, while core inflation won’t hit the 2% target until 2026. 

While unemployment is higher than the modern-era lows experienced not too long ago, Powell rebuffed worries about the weakening labor market. 

Jerome Powell: Just take the current situation. What you see is solid growth in the economy so and what you see is a solid labor market. So in a way, the measures we’re taking now are really due to the fact that our stance is due to be recalibrated, but at a time when the economy is in solid condition, that’s what we’re doing. We’re recalibrating policy to maintain the strength in the economy, not because of weakness in the economy. 

Simone Del Rosario: The Fed will meet two more times this year, with its next 2-day meeting right after the election. 

Right now, markets are leaning more toward a 25 basis point cut rather than a 50 basis point cut in November, according to CME’s FedWatch. Assuming they’re correct, then we have more traders  pricing in a 50 basis point cut in December, which would bring the rate down to between 4% to 4.25%. That’s higher than the 4.4% the Fed itself is projecting. 

We’ll have the latest unemployment numbers for you live on Friday, Oct. 4 at 8:30 am ET, join me then on the Straight Arrow News YouTube page as we bring you that report the minute it comes in.