Jerome Powell Indicates Gradual Rate Cuts Ahead
Federal Reserve Chair Jerome Powell announced on Thursday that the central bank is poised to reduce its benchmark interest rate slowly and cautiously over the next few months. This approach is partly due to persistent signs of inflation, with the Federal Reserve’s officials eager to observe its trajectory.
In a speech prepared for an event in Dallas, Powell noted that while inflation is inching toward the Federal Reserve’s goal of 2%, it hasn’t fully reached that target yet.
He also highlighted the current robustness of the economy, which allows the Federal Reserve’s policymakers the luxury of time to carefully watch inflation’s movements. “There are no immediate economic pressures forcing us to rush into rate reductions,” Powell stated. “The economy’s ongoing strength provides us with the flexibility to thoughtfully consider our next steps.”
Experts are anticipating the Federal Reserve to lower rates by a quarter-point this December, which follows a similar reduction last week and a more substantial half-point cut in September.
Uncertainty Beyond Initial Rate Cuts
Looking further ahead, the path for the Federal Reserve is less certain. Although in September, the central bank’s officials collectively indicated four potential rate cuts in 2025, financial markets seem to have different expectations. According to futures pricing observed by CME FedWatch, traders are now predicting only two rate cuts from the Fed.
The election of Donald Trump as president has pushed yields on Treasury securities higher, indicating that investors are anticipating accelerated growth next year. This expectation aligns with the potential for larger budget deficits and increased inflation, especially if Trump follows through on his promises of extensive tariffs and significant deportations of migrants.
In his comments, Powell implied that inflation might stay slightly above the Federal Reserve’s target in the near term. Nevertheless, he reiterated his belief that inflation should continue to decrease, albeit unevenly.
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Jamie Prescott specialises in economic journalism, breaking down complex topics like global trade and finance into digestible stories. Jamie helps readers stay informed about the economy and its impact on local communities.
