Federal Reserve Chair Jerome Powell announced on Monday that more interest rate cuts are coming, but they will happen slowly to support the economy, which is still doing well. Speaking at a conference in Nashville, Powell’s comments didn't fully meet some investors' hopes for bigger cuts. Earlier this month, the Fed made a big cut to help the job market after focusing on inflation for several years. While Powell’s remarks caused a brief drop in the S&P 500, it later recovered and finished higher for the day. He explained that the Fed is being cautious with the cuts, and future decisions will depend on how the economy performs.
Economists are paying close attention to Friday’s jobs report since it might influence the Fed’s plans. If unemployment rises or hiring slows down, the Fed could consider larger cuts. During the Fed’s last meeting in mid-September, interest rates were lowered, and Powell confirmed plans for two smaller cuts in the coming months. If things go as expected, there will be two more quarter-point cuts this year. Powell noted that while the economy and job market are generally strong, the Fed is being careful with rate changes to avoid speeding up or slowing down the economy too much.
Powell emphasized that the goal is to maintain a healthy economy, not just avoid a recession. Inflation has improved since August, although prices for things other than food and energy have gone up slightly. The unemployment rate has also dropped, but it's still higher than last year. Job growth has slowed, with fewer new jobs being added compared to last year. Over time, the Fed’s rate cuts should make borrowing more affordable for things like home and car loans, as well as credit cards. Powell added that the Fed’s current approach reflects confidence in keeping the job market strong while also working to bring down inflation.
Since the last rate cut, some officials within the central bank have advocated for more aggressive cuts, while others lean toward a more measured strategy. One official anticipates additional cuts next year, whereas another prefers a slower approach. The central bank is reacting to a slowdown in hiring and increasing unemployment, which could present risks to the economy. After primarily concentrating on inflation in recent years, leadership within the bank is now placing equal emphasis on both inflation and job growth.
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