Fed Chair Powell: "There’s No Urgency for Rate Cuts"

In a speech assessing the economic situation, Federal Reserve Chair Jerome Powell stated that current conditions do not create an urgent situation for interest rate cuts. Speaking to business leaders in Dallas, Powell expressed that the strong structure of the U.S. economy allows them to maintain a patient stance regarding future interest rate decisions. He emphasized that the overall performance of the U.S. economy is superior compared to other major global economies.

Powell noted that the employment gains in October were insufficient due to storms in the Southeast and worker strikes. Despite these challenges, he indicated that the labor market is generally resilient, and unemployment rates are still low compared to historical norms. He pointed out that unemployment rates have shown a stable trend in recent months and reiterated the strength of the overall economic structure.

Addressing inflation, Powell remarked that progress in inflation is broad-based and ongoing. Fed officials expect inflation to gradually approach the target rate of 2%. It was noted that inflation stood at 2.3% in October, with a rise in consumer and producer prices, while reaching 2.8% excluding food and energy costs. Powell stated that there might be fluctuations on the path to achieving the inflation target, but the Fed is firmly focused on this goal.

Following the 50 basis point interest rate cut in September, the recent reduction of the benchmark interest rate by an additional 25 basis points to the range of 4.5%-4.75% is seen as part of the aim to maintain economic stability while controlling inflation. Powell indicated that they aim to reach a neutral interest rate level that neither promotes nor limits economic growth, but he refrained from providing a specific timeline for when this level would be achieved.

Uncertainty regarding post-term roles at the Fed and assessments toward 2025 remain. There is ongoing uncertainty about whether Powell will remain on the Fed's Board of Governors after his term ends in May 2026. At an event in Dallas, he expressed his commitment to serve as Fed Chair until the end of his term but did not make any statements regarding his potential continuation as a board member afterward.

With the prospect of the first Fed Chair staying on the board after their term, Karen Ward from JPMorgan (JPM) Asset Management indicated that the Fed might pause interest rate cuts throughout 2025. Due to uncertainties surrounding Trump’s policies, it seems plausible that the Fed may adopt a wait-and-see approach to assess the economic effects. Ward suggested that by observing the economic implications of policies, the Fed might maintain the current situation throughout the year. In light of these assessments, it is predicted that the political and economic dynamics of 2025 will shape the Fed’s decisions.