Fed Chair Powell says US economy is in ‘strong shape’ and more rate cuts are coming

WASHINGTON – Federal Reserve Chairman Jerome Powell signaled Monday that further interest rate cuts are in the works, although their magnitude and speed will depend on how the economy fares.

Investors and Wall Street economists are wondering whether the Fed will follow its larger-than-usual half-point cut earlier this month with another sharp cut in either its next meetings in November or December. At their September 18 meeting, Fed officials scheduled two more quarter-point rate cuts at these final meetings in 2024.

In a speech to the National Association for Business Economics in Nashville, Tennessee, Powell said the U.S. economy and hiring were generally healthy and stressed that the Fed was “recalibrating” its key interest rate, which now stands at around 4.8%.

He also said the rate was moving “toward a more neutral position,” a level that neither stimulates nor restrains the economy. Fed officials have set the so-called “neutral rate” at around 3%, significantly below its current level.

Powell emphasized that the Fed’s current focus is on supporting a largely healthy economy and job market, rather than rescuing a struggling economy or preventing a recession.

“Overall, the economy is in good shape,” Powell said in written remarks. “We intend to use our tools to keep it there.”

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, rose slightly to 2.7%.

The unemployment rate, meanwhile, fell last month to 4.2%, from 4.3%, but still remains nearly a percentage point above the half-century low of 3.4 % reached last year. Hiring has slowed to an average of just 116,000 jobs per month over the past three months, about half the pace of a year ago.

Powell said the job 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 lower 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, the strength of the labor market can be maintained in a context of moderate economic growth and inflation falling sustainably to 2% ” Powell said.

Since the Fed’s rate cut, many policymakers have given speeches and interviews, with some clearly supporting further rapid cuts and others taking a more cautious approach.

Austan Goolsbee, president of the Fed’s Chicago branch, said the Fed would likely implement “many more rate cuts over the next year.”

Still, Tom Barkin, president of the Richmond Fed, said in an interview with The Associated Press last week that he favored reducing the central bank’s policy rate “somewhat” but would not was not yet ready to reduce it to a more neutral rate. setting.

One of the main reasons the Fed is cutting rates is slowing hiring and rising unemployment, which threatens to slow the economy as a whole. The law requires the Fed to seek both stable prices and maximum employment, and Powell and other policymakers have emphasized that they are now focused on a dual focus on employment and inflation, after having focused almost exclusively on combating price rises for almost three years.