Fed Chairman Jerome Powell says central bank is in no rush to reach ‘neutral rate’
SlateStone Wealth chief market strategist Kenny Polcari discusses Fed Chair Powells performance and the steps Trump will take to stimulate the economy at Varney & Co.
Federal Reserve Chairman Jerome Powell he said on Thursday that central bank policymakers are in no rush to lower interest rates to the so-called “neutral rate” and feel free to make changes to rates as it looks to bring inflation back to its target.
At an event held at the Dallas Regional Chamber, Powell said in his opening remarks, “We are moving policy over time to a neutral position. But the path to get there is not planned. the financial ratio, we will carefully evaluate the incoming data, the evolving outlook, and the balance of risks.”
“The economy is not sending signals that we need to rush to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully,” explained Powell. “Ultimately, the path to the policy level will depend on how incoming data and economic conditions change.”
In a question and answer session with Washington Post writer Catherine Rampell, Powell was asked how it happened The Federal Reserve he knows when it has reached the level of neutrality and his previous comment that “we know it by its works.”
FED LOWERS INTEREST RATE BY A QUARTER POINT
Fed Chairman Jerome Powell said the central bank is in no rush to reach the neutral rate, and is in a position to adjust as new economic data comes in. (Shelby Tauber/Bloomberg via Getty Images/Getty Images)
Powell explained that when the Fed moves the federal funds rate up or down, it must “have a rate of something neutral, an interest rate that doesn’t push the economy up or support it or pull it down, be it a tight, restrictive policy.”
“We fully agree that there is no theoretical or practical way to arrive at a measure of what level of neutrality you can rely on the most,” he said. “So what’s that against? It’s against walking carefully.”
He went on to say that the Fed considers its current policy to be restrictive, although it won’t say exactly how restrictive it is, because “the economy has been very tight and now it’s cooling down the way we hoped it would, which is.” we’ve had a gradual cooling in the labor market, inflation has come down a lot, too labor market It’s not stable, but it’s in a good place.”
THE FED’S POWELL STAY IS FIXED EVEN TRUMP HAS A DIFFERENT VIEW
“We started the process of reducing the levels and we are going back down to neutrality. I think the right way to find that level carefully and patiently,” he explained. “You don’t want to go too fast – you might have to go too fast because if the labor market starts to deteriorate in a serious way, we’d want to go further, but we don’t see that.”
“I think that in this situation, what you need is for us to be careful and to move carefully, and to reach a distance that is close to a reasonable distance of neutral levels, it is possible that we are slowing down what we are doing.” we are just trying to increase the chances of getting this right,” he said.
“We’re oscillating between… the risk that we’re going too fast, the risk that we’re going too slow. We want to slow down and get it right so we can provide support for the labor market and help fuel inflation,” Powell explained. “So the slow pace, if the data it will allow us to move a little bit, that seems like a smart thing to do.”
INFLATION INCREASED 2.6% IN OCTOBER, CONTINUES WITH EXPECTATIONS
The Fed raised interest rates to their highest level since 2001 – a range of 5.25% to 5.5% – due to the hottest inflation in 40 years, which rose to 9.1% in June 2022 following pandemic-related supply disruptions and and large levels use of federal funds aimed at reducing the impact of COVID.
At its last two meetings, the Fed cut the federal funds rate by 50 basis points in September, followed by a 25 basis point cut last week, leaving it from 4.5% to 4.75%. Inflation measures have eased closer to the 2% target, with the consumer price index (CPI) at 2.6% in October and the Fed’s preferred. Personal consumption expenditure index (PCE). by 2.1% in September, the most recent reading.
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Powell was asked if he plans to continue serving on the Fed’s Board of Governors after his term as chairman ends in May 2026. His term on the board of governors runs through January 2028.
“I can only say, I will work until the end of my term as chairman, and that’s all I’ve decided and how I think about that. We’re very focused on doing a job for the American people, that’s enough of the job we have to focus on,” said Powell.
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