US Fed’s Powell signals gradual cuts to keep economy strong

4:40am on 1 October 2024

The news: US Federal Reserve Chair Jerome Powell signalled the central bank will continue lowering interest rates gradually to support economic growth and employment, aiming for a "soft landing" where inflation reaches the 2% target without a surge in joblessness.

The numbers: The Fed cut rates by half a percentage point in September, the first cut since 2020, as it started its easing cycle. A further rate cut of at least 0.25% is widely expected at the upcoming 6-7 November meeting.

The context: But Powell said the Fed is not on a course for aggressive rate cuts and is instead focused on preventing a downturn rather than reacting to one.

Speaking at a Nashville conference, Powell said the jumbo rate cuts had come to maintain the economy's current strength rather than addressing significant weakness in the economy.

He said that the economy remains "in solid shape" and reiterated the aim is to support ongoing growth and a strong labour market while inflation trends toward the 2% target.

The Fed won’t rush into cuts, preferring a neutral stance over time. Its actions will be "meeting by meeting" and guided by incoming data, Powell said.

Inflation has eased, with the Fed’s preferred measure at 2.2% in August, while the unemployment rate has risen to 4.2%.

What they said: “We are recalibrating policy to maintain the strength in the economy, not because of weakness in the economy,” Powell said.

“Overall, the economy is in solid shape; we intend to use our tools to keep it there.”

"Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance.”

"We do not believe that we need to see further cooling in labour market conditions to achieve 2% inflation."

"Our goal all along has been to restore price stability without the kind of painful rise in unemployment that has frequently accompanied efforts to bring down high inflation."

The source: Jerome Powell speech