Powell: There's No Need for the Fed to Rush into Interest Rate Cuts

Forex - Federal Reserve Chairman Jerome Powell stated that the ongoing economic growth, solid labor market, and inflation remaining above the 2% target indicate that there is no rush for the Fed to lower interest rates. Powell emphasized that he and his fellow policymakers believe inflation is still on a "sustainable path toward 2%" that will allow the U.S. central bank to shift its monetary policy to a "more neutral setting" over time, without aiming to slow down the economy.

Powell noted that, at present, there are no warning signs indicating that the economy requires the Fed to accelerate interest rate cuts. On the contrary, he mentioned that if "data allows us to go slightly slower, that seems like a smart thing to do. The economy is not signaling that we need to rush to lower rates. The strength we see in the economy allows us to approach our decisions carefully."

Fed officials and investors are assessing how the ongoing economic strength of the U.S. and the uncertainties surrounding the economic agenda of elected President Donald Trump—particularly regarding tax cuts, tariffs, and immigration—might affect economic growth and inflation.

During the question-and-answer session, Powell mentioned that Fed staff might start considering the potential impacts of Trump’s tariffs and other campaign proposals, but understanding these effects would take time and would not become clear until new laws or executive orders are approved or issued. "The answer is not clear until we see actual policies. I don't want to speculate. There are still months until a new administration takes over," he stated, adding that the current economic conditions are different from when Trump began his first term eight years ago, which was characterized by lower inflation, slower growth, and decreased productivity. Powell noted, for instance, that the recent increase in immigration has created "a larger economy" during a time of post-pandemic labor shortages. More generally, following last week’s election, which may have shifted voters’ perceptions of the country’s economic issues, Powell concluded that the current situation is actually "quite good."

Powell largely skirted questions about how new tariffs on imports or operating the economy with fewer workers might change the inflation trajectory that the central bank is trying to lower. "We can do the arithmetic. If there are fewer workers, less gets done," Powell stated, adding, "this puts me into political topics I want to stay as far away from as possible."