Powell Reiterates That the Fed Has No Urgency to Cut Rates Rapidly
Forex - Federal Reserve Chairman Jerome Powell emphasized once again that there is little urgency for the Fed to quickly lower interest rates considering the uncertainty in the inflation outlook and the current solid economic backdrop.
In an interview with Andrew Ross Sorkin at the New York Times DealBook Summit, Powell stated, “The U.S. federal budget is on an unsustainable path. Debt is not at an unsustainable level, but the trajectory is unsustainable. We need the economy to grow faster than the debt, and that is not happening.”
Regarding the current state of the economy, Powell described a solid backdrop with ongoing inflationary pressures. He reiterated his views that the Fed is not in a hurry to lower interest rates further in light of recent data.
Powell remarked, “The economy is strong and stronger than we thought it would be in September. There appear to be fewer downside risks in the labor market, growth is definitely stronger than we anticipated, and inflation is slightly rising. So, the good news is that we can afford to be a bit more cautious while trying to find the neutral level.”
Since September, the Fed has lowered the federal funds rate by 0.75 percentage points, leaving it in the target range of 4.5% to 4.75%. Powell and other officials referred to the objective of interest rate cuts as achieving a neutral interest rate, which neither boosts nor constrains economic activity.
When asked about Treasury Secretary nominee Scott Bessent's suggestion to Barron's that newly-elected President Donald Trump could announce the person who will succeed Powell, whose term ends in early 2026, Powell rejected the idea, stating, “I seriously doubt that this is on the table. There is a series of institutional relationships between the Fed and every administration. I hope we will have the same types of general relationships.”
Powell noted that the Fed Chair and the Treasury Secretary have shared a weekly meal for 75 years. He expressed hope that this will continue, adding that he does not know Bessent well and has not spoken to him since the election.
Ross Sorkin repeatedly directed the conversation towards Trump, who has often criticized the Fed during his first term and recently suggested that the President should have a say in interest rate decisions. One of the questions directed at Powell concerned the central bank's independence from other sectors of the U.S. federal government.
Powell stated, “We are a creature of Congress; we are not in the Constitution. We are part of the laws... This gives us the authority to make decisions always in the interest of all Americans, not for any political party or political outcome. We need to provide maximum employment and price stability for the benefit of all Americans and stay completely away from politics.”