Fed Chair Powell Signals Cautious Approach to Rate Cuts Amid Strong Economic Performance

WASHINGTON, D.C., 4 December 2024 – Federal Reserve President Jerome Powell, speaking at the New York Times DealBook Summit, said the strong performance of the U.S. economy allows the central ​bank to adopt a more measured approach to future interest rate reductions. He stressed the importance of maintaining the independence of the ​Federal Reserve of political influences, particularly in the light ​of recent comments by President-elect Donald Trump.

Economic ​resilience and monetary policy

Powell noted that the economy is working better than expected, with growth exceeding expectations established during the year. This ​force allows the Federal Reserve to proceed cautiously with ​monetary ​policy adjustment. “Given the stronger growth this year, we can afford ​to be a little more cautious in trying to find neutrality with interest rate policy,” said Mr. Powell. He ​pointed out that while ​inflation remains slightly above ​the Fed’s 2% target, the central bank is ​moving towards this target.

Independence of the Federal Reserve

In responding to concerns about ​possible political interference, Powell stressed the need for the self-government of the ​Federal Reserve in decision-making that serves all Americans, rather than in agreement with any political party. This statement responds to ​President Trump’s previous criticism of the Fed and suggestions to ​influence its policies. Powell expressed confidence in Congress’ broad support for the Fed’s independence, saying, “I am not concerned ​about the ​risk of losing our legal independence.”

Market reactions and future prospects

Financial markets closely monitor the Federal Reserve’s interest rate signals. Powell’s comments ​suggest that while the strength of the economy allows ​for a cautious approach, ​the central bank ​remains vigilant against inflationary pressures. Investors anticipate that ​the Fed will be able to apply another quarter rate at the next meeting in December, after the September and November reductions. However, Powell’s emphasis on prudence indicates that future reductions will be carefully examined on the basis of economic ​data.

Addressing the federal ​budget deficit

In his comments, Powell also mentioned the federal budget deficit, emphasizing the need for ​economic growth to address this problem. He noted ​that while ​the Federal Reserve plays ​a ​role in promoting growth conditions, it is essential that fiscal policies support ​sustainable economic expansion. This perspective is consistent with the Fed’s broader mandate to promote maximum employment and stable prices.

As the Federal Reserve passes through the complexities of the current economic landscape, Powell’s ​statements demonstrate a commitment to making data-based decisions and maintaining the integrity of the institution in the midst of external pressures. Future ​economic data, including the November ​Employment Report and the Consumer Price Index, will be critical to shaping Fed’s short-term policy decisions.