Jerome Powell Says Fed Not In a Hurry to Lower Interest Rates

US Federal Reserve chairman Jerome Powell holds a press conference in Washington, DC, on September 18, 2024. The US Federal Reserve cut its key lending rate by half a percentage-point Wednesday in its first reduction since the pandemic, sharply lowering borrowing costs shortly before November's presidential election. Photo by Mandel NGAN / AFP

The Federal Reserve is not “in a hurry” to lower interest rates, says central bank chief Jerome Powell.

In his first public remarks since the Federal Reserve announced a second consecutive rate cut last week, Powell said that the strong U.S. economy will give monetary policymakers enough time to determine the pace and size of rate cuts.

“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said in a speech to business leaders at a Dallas Fed event on Nov. 14.

“The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”

He described U.S. economic growth as “the best of any major economy in the world.”

Looking ahead, the direction of monetary policy will depend on incoming data and how the economic outlook evolves, Powell noted.

He emphasized the need for a “recalibration” of the central bank’s stance and a careful approach to policy changes to avoid sudden weakness in economic activity.

Reiterating his comments from this month’s press conference after the Federal Open Market Committee policy meeting, Powell said that he and his colleagues are navigating a balance between supporting the labor market and preventing inflation pressures from resuscitating.

“We know that reducing policy restraint too quickly could hinder progress on inflation,” he said.

“At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment.

“So going a little slower, if the data let us go a little slower, that seems like a smart thing to do.”

He said that moving policy over time to a more neutral setting is necessary, though “getting there is not a preset.”

On the inflation front, the Fed chief stated that the United States is inching closer to the institution’s 2 percent inflation objective, “but it is not there yet.”

“I expect inflation to continue to come down toward our 2 percent objective, albeit on a sometimes bumpy path, given progress toward our inflation goal in the cooling of labor market conditions,” he said.

This week’s inflation reports suggested the final mile to restoring price stability might be more challenging.

The October annual inflation rate rose for the first time since March, increasing to 2.6 percent, in line with market expectations.

Last month, the producer price index, a measure of prices paid for goods and services by businesses at the wholesale level, also climbed to a higher-than-expected year-over-year pace of 2.4 percent.

Central Bank Independence

With some concerned that Powell and President-elect Donald Trump will clash until the Fed Chair’s term expires in 2026, central bank independence has become a subject of discussion again.

Powell told reporters last week that he would not resign if Trump asked him to and that firing him prior to the completion of his tenure is “not permitted under the law.”

In a question-and-answer session at the Dallas Fed event, Powell highlighted the importance of Fed independence, which means it is free of political implications on Capitol Hill.

“We’re not thinking of other political factors, which would frankly be a distraction to the already difficult work that we have to do the main job,” Powell stated.

While it is an independent institution, Congress still has oversight over the Federal Reserve system, he said.

Powell appears before both chambers of Congress twice a year for his semi-annual monetary policy report.

Earlier on Nov. 14, Fed Gov. Adriana Kugler also defended central bank independence, saying in prepared remarks that ensuring monetary policy is free from political influence can result in positive outcomes, particularly on inflation.

“It has been widely recognized—and is a finding of economic research—that central bank independence is fundamental to achieving good policy and good economic outcomes,” Kugler said in a speech at the 2024 Annual Meeting of the Latin American and Caribbean Economic Association.

“It is not sufficient by itself to achieve those goals, but, over time, it is almost always necessary,” Kugler said in remarks delivered on Nov. 14.

Both monetary officials agreed that credibility was paramount to facilitating support for Fed independence.

Trump has clarified that he would allow Powell to complete the remainder of his term, “especially if I thought he was doing the right thing.”

He also told reporters at his Mar-a-Lago residence this past summer that he believes presidents should have a say in decision-making on interest rates.

Market Reaction

Wall Street’s post-election rally could be fading.

U.S. stocks slumped heading into the closing bell, fueled by Powell’s indication of a more conservative position on interest rate cuts.

The blue-chip Dow Jones Industrial Average shed about 200 points, while the tech-heavy Nasdaq Composite Index lost more than 100 points.

The S&P 500 dipped by 0.6 percent to below 6,000.

The Treasury market, which has garnered sizable attention among investors and policymakers, was mostly in positive territory.

The benchmark 10-year yield was little changed at 4.45 percent. The 2-year yield surged to 4.35 percent, and the 30-year bond slipped below 4.6 percent.

Despite the Fed launching a new easing cycle, medium- and long-term yields have been steadily rising.

Economists say the upward movement in yields is being driven by fiscal health concerns, solid economic data, and a potential recalibration of Fed policy expectations.

The U.S. dollar index, a gauge of the buck against a weighted basket of currencies, rocketed toward 107.00.

The index is on track for a weekly gain of about 2 percent, adding to its year-to-date gain of 5.5 percent.

According to the CME FedWatch Tool, the futures market is penciling in another quarter-point reduction to the benchmark federal funds rate.

The next two-day Fed policy meeting will take place on Dec. 17 and Dec. 18.