Federal Reserve Chairman Jerome Powell has signaled that additional rate cuts could be on the horizon, expressing confidence in the U.S. economy but cautioning that the central bank isn’t committed to a “preset course” on rates and will respond with appropriate policy shifts based on incoming data.
Powell made his remarks during a speech on Sept. 30 at the National Association for Business Economics Annual Meeting in Nashville, where he outlined the central bank’s outlook for the U.S. economy and monetary policy. The Fed chief emphasized that although inflation has eased and labor market conditions remain “solid,” the future path of interest rates will depend on how the economy evolves.
The Federal Reserve recently cut its benchmark interest rate by 50 basis points, or half a percentage point, to a range of 4.75–5 percent, citing growing confidence that inflation is on a sustainable path toward the Fed’s target of 2 percent. However, Powell cautioned in his speech on Sept. 30 that the Fed remains vigilant and will not hesitate to make further adjustments if necessary.
“Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course,” he said. “The risks are two-sided, and we will continue to make our decisions meeting by meeting. As we consider additional policy adjustments, we will carefully assess incoming data, the evolving outlook, and the balance of risks.”
Powell’s remarks were made amid a backdrop of easing inflation and relatively stable, though cooling, labor market conditions. The Fed’s decision to cut rates in September was the first rate reduction in more than two years, following a prolonged period of rate hikes aimed at curbing inflation that had surged well above the central bank’s target.
Despite progress with inflation, Powell stressed that challenges remain. Housing inflation, in particular, continues to decline at a “sluggish” pace, he said, adding that the Fed remains cautious about potential risks.
“Labor market conditions have clearly cooled over the past year. Workers now view jobs as somewhat less available than they were in 2019,” he said. “The moderation in job growth and the increase in labor supply have led the unemployment rate to increase to 4.2 percent, still low by historical standards. We do not believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation.”
While Powell’s remarks suggest the Fed has grown more concerned about high interest rates damaging the labor market, Federal Reserve Governor Michelle Bowman, who argued for a smaller, 25 basis-point cut at the latest policy meeting, argued in a separate speech on Sept. 30 that moving too quickly to ease could lead to unintended consequences, including a resurgence of inflationary pressures.
Bowman also said that a 50 basis-point cut could signal economic fragility and create market expectations for continued large cuts, potentially leading to overly accommodative financial conditions.
“I preferred a smaller initial cut in the policy rate while the U.S. economy remains strong and inflation remains a concern, despite recent progress,” Bowman said in a speech at a Georgia Bankers Association conference in Charleston, South Carolina.
In particular, she noted that persistently high core inflation readings, which largely reflect pressures on housing prices, remain a concern.
“Core inflation remains uncomfortably above our 2 percent target,” she said. “In light of these economic conditions, a few further considerations supported the case for a more measured approach in beginning the process to recalibrate our policy stance to remove restriction and move toward a more neutral setting.”
Bowman emphasized that a more gradual approach would better support economic stability and avoid sending unintended signals about the underlying strength of the U.S. economy.
