Federal Reserve Chairman Jerome Powell Pushes Back on Market Expectations for Aggressive Interest Rate Cuts
Federal Reserve Chairman Jerome Powell recently addressed market expectations for aggressive interest rate cuts, stating that it was too early to declare victory over inflation. In a news conference after a Federal Open Market Committee meeting, Powell emphasized the need to maintain a restrictive policy until policymakers are confident that inflation is solidly heading back to 2%.
“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell stated in prepared remarks for an audience at Spelman College in Atlanta. “We are prepared to tighten policy further if it becomes appropriate to do so.”
Balancing Risks
Powell also noted that policy is “well into restrictive territory” and that the balance of risks between doing too much or too little on inflation are closer to being balanced now. While Powell’s remarks had little immediate impact on the market, the discussion on future rate cuts has been a topic of interest.
Market Expectations
The expectation that the Fed is done raising rates and will move to an easing posture in 2024 has underpinned a strong rally on Wall Street. Powell’s remarks gave some credence to the idea that the Fed is done hiking as the string of rate hikes since March 2022 has cut into economic activity.
Personal Consumption Expenditures Prices Data
The Commerce Department report showed that personal consumption expenditures prices, the Fed’s preferred inflation gauge, were up 3% from a year ago. Powell addressed this data, stating that it was still “well above” the central bank’s goal and emphasized that progress must continue to reach the 2 percent objective.
Future Outlook
Market pricing indicated that the Fed is done hiking and could start cutting as soon as March 2024. However, neither Powell nor any of his fellow officials have provided any indication that they’re thinking about cuts, with the chair adhering to data dependence for future decisions rather than any preset course.
Overall, Powell’s comments reflect a cautious approach to interest rate policy. With the next Fed meeting scheduled for December, market participants will be eagerly awaiting further clues about the central bank’s future moves.
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