Powell says Fed not ‘in a hurry’ to cut interest rates Federal Reserve Chair Jerome Powell articulated on Tuesday that the central bank does not perceive an immediate necessity to expedite its interest rate reduction endeavors. He underscored that the rate had been significantly diminished last year, and the economic landscape remains robust.
“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell elucidated in testimony before the Senate banking committee.
His assertions resonate with those he articulated at a recent news conference, following the Fed’s decision to maintain its key short-term interest rate unchanged.
After elevating
After elevating its key interest rate to a 23-year zenith of 5.25% to 5.5% in 2022 and 2023 to combat a pandemic-induced inflation surge, the Fed subsequently reduced the rate by a total percentage point at three consecutive meetings in 2024. This adjustment was prompted by the deceleration of consumer price increases.
The Fed’s preferred annual inflation metric has plummeted from a zenith of 5.6% to 2.8%.
“Inflation has eased significantly over the past two years but remains somewhat elevated relative to our 2% longer-run goal,” Powell stated in his written remarks.
What’s next?
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With annual inflation persistently at about 2.8% since autumn, the economy’s performance remains commendable, and President Donald Trump’s economic policies introduce an element of uncertainty regarding the future trajectory. Consequently, the Fed elected to maintain rates unchanged in late January, signaling a slowdown in the rate-cutting pace for this year.
“The economy is strong overall and has made significant strides toward our objectives over the past two years,” Powell emphasized in his prepared testimony. “Labor market conditions have cooled from their formerly overheated state.”
Post-pandemic, the job market was plagued by widespread labor shortages and employers were compelled to significantly elevate wages to attract workers. This, coupled with supply chain disruptions, contributed to the inflationary pressures.
However, the labor market has demonstrated resilience. Powell noted that payroll gains have averaged 189,000 a month over the past four months, and unemployment was at 4% in January, marking an eight-month low. The economy, he added, expanded 2.5% from the fourth quarter of 2023 to the fourth quarter of 2024, bolstered by resilient consumer spending, indicative of robust growth.
In his written testimony, Powell refrained from referencing Trump’s trade and immigration policies. At recent news conferences, he acknowledged that some Fed officials have incorporated Trump’s plans into their forecasts for the economy, inflation, and interest rates. However, it is premature to ascertain the precise implications.
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Trump’s imposition of tariffs on imports from other nations
Powell says Fed not ‘in a hurry’ to cut interest rates Trump’s imposition of tariffs on imports from other nations and the deportation of millions of immigrants without permanent legal status are expected to have significant repercussions. The majority of import levies will likely be absorbed by consumers through increased prices, while the immigration crackdown will likely constrain the labor supply, driving up wages and contributing to price increases, according to Moody’s Analytics.
In December, Fed officials forecasted a reduction in their benchmark interest rate twice this year, a decrease from the four rate cuts anticipated in September. Futures markets also predict two decreases. The Fed is not anticipated to lower its federal funds rate at a mid-March meeting.