NASHVILLE, Tennessee, Sept 30 – Federal Reserve Chair Jerome Powell signaled on Monday the U.S. central bank would probably continue to trim interest rates by quarter percentage point increments and was not “in a hurry” after new data strengthened confidence in continued economic growth and consumer spending.
“This is not a committee that feels like it is in a hurry to cut rates quickly,” Powell said at the National Association for Business Economics conference, even though the policy setting Federal Open Market Committee launched its easing cycle with an unexpected half percentage point cut at its Sept. 17-18 meeting.
“We will do what it takes in terms of the speed at which we move,” Powell said, to try to keep inflation moving toward the Fed’s 2 percent target while sustaining an historically low unemployment rate.
But, with discussion over whether the U.S. central bank might approve another large reduction to account for the fast decline of inflation since last year, Powell said the baseline was currently for two quarter percentage point reductions by the end of this year, as indicated in policymakers’ updated economic projections released earlier this month.
“If the economy evolves as expected, that would be two more cuts” by year’s end, for a total reduction of half a percentage point more, he told the crowd in Nashville, Tennessee.
His comments were heavily pegged to confidence in continued economic growth buoyed by recent data revisions showing income and spending and savings estimates increased and that gross domestic income was growing faster than thought.
Changes in government reports on GDI removed a “downside risk to the economy and suggests spending can continue at a healthy level,” Powell said.
GDI is an alternate way of measuring economic growth, counterpart to gross domestic product, but with income rather than output as the yardstick. A divergence between the two, with GDI coming in far weaker led Fed officials to worry output might be weaker than thought, but the two converged when the estimate of GDI was revised higher.
The economy “is in solid shape,” Powell said.
As Powell spoke, financial markets leaned more heavily into bets that the Fed would cut rates in quarter-percentage point increments, and now see that as the likely pace through the middle of next year.
The decision will nonetheless hinge on the incoming data, in particular the Sept U.S. employment report due on Friday and the Oct employment report slated for Nov. 1, just days before the central bank’s Nov. 6-7 meeting.
Stocks gave back some of their post Federal Open Market Committee meeting strength following Powell’s remarks but major indices ended higher for the day. U.S. Treasury yields advanced.
‘RISKS ARE TWO-SIDED’
Powell said the U.S. economy seems poised for a continued slowdown in inflation that will let the Fed reach a more neutral level of interest rates “over time.”
“Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2%,” he said. “We are not on any preset course. The risks are two sided, and we will continue to make our decisions meeting by meeting.”
The Fed’s policy rate currently is set in the 4.75%-5.00% range. Economic projections released at the meeting earlier this month showed the median policymaker expectation was for the rate to fall further, to the 4.25%-4.50% range by the end of this year, to the 3.25%-3.50% range by the end of 2025, and for policy easing to end in 2026 with the rate around the longer run estimated “neutral” level of 2.9%.
The Powell references to “two-sided” risks is a signal of how Fed officials will be open to debating in both directions as data accumulate.
In an interview on Monday with Reuters, for example, Atlanta Fed President Raphael Bostic said he expects an “orderly” pace of rate cuts going forward, but is open to another half percentage point cut if forthcoming employment reports show job growth has significantly weakened. He and Fed Governor Michelle Bowman separately said the fact inflation, ex food and energy costs, was stuck at 2.7% in August was reason not to cut interest rates too quickly.
The most recent inflation data posted a headline rate of just 2.2%.
Still, Powell added that he felt “broader economic conditions. set the table for further disinflation.”
Goods prices have been in decline, while the once sticky parts of the service industry saw inflation now “close to its pre-pandemic pace,” according to Powell.
Progress on housing inflation has been “sluggish,” the Fed chief said, but “the growth rate in rents charged to new tenants remains low. As long as that remains the case, housing services inflation will continue to decline.”
He termed the labor market as “solid, with a 4.2 percent unemployment rate, which is still low and around the level that Fed officials consider to be consistent with sustainable in the long run, given inflation at the central bank’s target.
“The economy is in solid shape overall, and we intend to use our tools to keep it there,” said Powell, adding the Fed has made “a good deal of progress” toward bringing down inflation without an abrupt jump in unemployment.
