Federal Reserve Chairman Jerome Powell indicated potential further interest rate cuts but emphasized a cautious approach. While Powell didn't commit to any specific future action, he dashed market expectations for an aggressive rate cut of 50 basis points in one meeting.
During a speech at the National Association for Business Economics (NABE) annual meeting in Nashville, Powell clarified that the recent 50 basis point rate cut should not be taken as a signal for future aggressive actions. He suggested that if the economic data remains consistent, there might be two more rate cuts this year, each by 25 basis points.
The Federal Reserve's projection indicates no urgency for rapid rate cuts. Most officials expect two more 25 basis point cuts this year, which aligns with the September dot plot. The aim is to maintain economic stability without overly stimulating or dampening economic activity.
Powell expressed confidence in the U.S. economy and expects inflation to continue to cool. While emphasizing the Fed's data-driven approach, he pointed out that if the job market deteriorates significantly, more substantial rate cuts could be considered.
Powell reiterated the goal of achieving a "soft landing," reducing inflation without substantially increasing unemployment. He also addressed the recent 50 basis point cut, emphasizing the need for policy adjustment to better reflect current conditions and maintain a strong labor market without further cooling it.
Housing costs remain a persistent area of inflation, but Powell believes this will decrease as rental renewals progress. He mentioned recent revisions in the GDP and consumer income data, which were both upgraded, alleviating economic downside risks.
Despite improvements in productivity, Powell remains cautious about its sustainability. He stressed the importance of closely monitoring the labor market, often a more immediate indicator than GDP data.
Market reactions to Powell's remarks included a slight increase in two-year U.S. Treasury yields and a rise in the USD/JPY exchange rate. Meanwhile, the S&P 500, Dow Jones, and Nasdaq indices reported slight declines, with the Philadelphia Semiconductor Index dropping by 1.5%.
Currently, the futures market suggests a cautious rate cut of 25 basis points at the November Federal Reserve meeting, with a more aggressive 50 basis point cut expected in December.
