Chair Jerome Powell conveyed on Thursday that the Federal Reserve is likely to proceed with cautious and measured cuts to its primary interest rate in the upcoming months. This decision is influenced by the ongoing persistence of inflation and the desire among Fed officials to monitor its future trajectory.
In comments made during a speech in Dallas, Powell noted that inflation is moving closer to the Fed’s desired target of 2%, yet he emphasized, “it is not there yet.” He also commented on the robust state of the economy, indicating that it allows the Fed’s policymakers the luxury of time in assessing inflation trends.
Powell remarked, “The economy is not sending any signals that we need to be in a hurry to lower rates.” He elaborated that the current economic strength affords the Fed the opportunity to make decisions with caution.
Among economists, there is an expectation that the Fed will announce a further quarter-point rate reduction in December, following a similar decrease last week and a half-point cut in September. Looking beyond December, however, uncertainty looms regarding the Fed’s future actions. In September, Fed officials had suggested they aimed for four rate cuts in 2025. Yet, market speculation indicates that Wall Street traders are now anticipating only two rate reductions to come, based on futures pricing data gleaned from CME FedWatch.
The recent presidential election victory of Donald Trump has led to increased yields on Treasury securities, indicating that investors are forecasting accelerated economic growth for the following year. This expectation is coupled with concerns over potential budget deficits and rising inflation should Trump implement broad tariffs and aggressive migration policies as he has indicated.
In his address on Thursday, Powell hinted at the possibility that inflation could remain slightly above the Fed’s target for several months. However, he remained optimistic, reaffirming the belief that inflation would eventually decrease further, “albeit on a sometimes bumpy path.”