Fed Chief Signals Slow and Steady Rate Reduction Approach
By April Fowell
- Federal Reserve Chair Jerome Powell indicates a cautious approach to interest rate reductions this year, potentially moving more slowly than market expectations, as he emphasizes confidence in the economy and downplays concerns about the impact of rate hikes.
- Powell's "60 Minutes" interview follows the recent Federal Open Market Committee meeting, where he expresses optimism about the robust labor market and decreased inflation, suggesting a reluctance to make immediate rate cuts despite aggressive market speculations.
- The FOMC, maintaining the benchmark borrowing rate within the range of 5.25-5.25%, delays potential rate cuts until greater confidence in achieving the 2% inflation goal, contradicting market expectations of five quarter-point decreases. Powell highlights geopolitical developments as a significant risk and reiterates the Fed's independence from political pressure during the presidential election year.
In a Sunday interview, Federal Reserve Chair Jerome Powell said that the bank will cautiously reduce interest rates this year, perhaps moving much more slowly than the market anticipates.
Powell gave a broad interview to "60 Minutes" following the Federal Open Market Committee meeting last week. He talked about how confident he was about the economy, how he wouldn't be affected by the outcome of this year's presidential election, and how the pain he was afraid rate rises would cause never truly happened.
As he stated at a press conference on Wednesday, it is improbable that the FOMC would take the initial action in March as the futures markets had been expecting.
The committee decided to maintain its benchmark borrowing rate within the range of 5.25-5.25% at the end of the meeting. The committee said that it will not make cuts "until it has gained greater confidence that inflation is moving" to the 2% goal in its post-meeting statement.
Market Speculations and Powell's Economic Outlook
Aggressive wagers on the number of rate cuts the Fed would make this year have been made by markets. Five quarter-percentage point decreases are indicated by current pricing, although Powell supported the FOMC's December "dot plot" grid of individual members' estimations, which indicated just three movements.
Powell expressed general optimism about the economy, pointing out that the labor market is robust and that inflation has decreased even if it is still higher than the Fed's objective. According to data released by the Labor Department on Friday, nonfarm payrolls increased by 353,000 in January. He stated that geopolitical developments probably pose the greatest risk.
Powell cautioned that the tightening of policy would create "some pain" during the Fed's annual retreat in Jackson Hole, Wyoming, in August 2022, early in the cycle of rate hikes. But, he said in the "60 Minutes" interview, that hasn't been the case.
Regarding a different issue, Powell restated that during this year of the presidential election, neither he nor his colleagues will yield to political pressure.