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May 29, 2024

Powell Signals Cautious Approach to Rate Cuts Despite Cooling Inflation

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Feb 5, 2024

Federal Reserve Chair Jerome Powell indicated the central bank will take a patient approach to interest rate cuts this year despite an easing of inflationary pressures, according to his interview Sunday on 60 Minutes.

Fed Likely to Wait Beyond March Before Cutting Rates

In the wide-ranging interview, Powell said the Fed will likely hold off on rate cuts until mid-year at the earliest, even as inflation continues to drift down toward the central bank’s 2% target.

“We expect inflation will come down, but we still have some ways to go,” Powell told interviewer Scott Pelley. “I can’t be precise about timing or the pace,” he added, noting that the Fed remains focused on achieving a “soft landing” for the economy.

Powell indicated the Fed wants to avoid cutting rates prematurely while inflation remains above target and economic growth continues, albeit at a slower pace. This would avoid stoking inflation again later on while also providing policymakers with “optionality” to cut further if necessary.

“If we continue to get, for example, strong labor market reports or higher inflation reports, it might be the case that we have to raise rates more than is now expected,” Powell explained.

Global Developments Factor Into Policy Decisions

The Fed chair cited slowing global growth, particularly in China and Europe, as one factor influencing the U.S. outlook and future policy moves.

“Weakness abroad dampens growth here…We can’t ignore what’s going on in the rest of the world,” Powell said. He specifically mentioned China’s reopening from COVID lockdowns as a potential boost after recent economic weakness there.

Powell also addressed risks posed by China’s struggling property sector. “Could something happen in China that affects global financial markets? Absolutely, that’s possible,” he said. However, Powell asserted he does not anticipate spillover to the U.S. from Chinese real estate issues on par with risks during the global financial crisis of 2008.

Cyber Threats Weigh on Powell’s Mind

On risks closer to home, Powell called out escalating cyberattacks on U.S. firms and critical infrastructure. He revealed that cyber risks now rank as a regular topic of concern voiced by bank and business leaders in Fed meetings.

“Cyber has emerged as the foremost risk,” Powell said. “The private sector’s not used to thinking about national security.” He suggested “heightened information sharing” between government agencies and private companies could help coordinate defenses and responses.

Powell also touched on artificial intelligence, Silicon Valley’s outlook, climate change risks, and diversity within the ranks of economists. But his remarks continuously circled back to the Fed’s inflation fight and policy trajectory for 2023-2024.

Key Takeaways from Powell’s Comments

Topic Implications
Rate Cuts Not expected until at least mid-2023, will depend on data
Inflation Still above target but continuing to ease gradually
Economic Growth Slowing but still positive, risks mainly external
Employment Remains historically strong, potential overheating risk
Global Economy Weakness abroad dampens U.S. growth somewhat
China Property Contained for now but risks linger on Powell’s radar
Cybersecurity Emerging as top threat for Fed, more coordination needed

With inflation appearing to pass its peak while economic activity cools, Powell aimed to portray a Fed ready to act when needed but not in a hurry to switch gears. His steadfast yet adaptable stance continues the messaging he has honed over successive press conferences during this tightening cycle.

Patience Preached Despite Mounting Pressure

The Fed lifted rates seven times last year in its drive to curb 40-year high inflation, bringing the target range to 4.5-4.75% currently. Powell has endured no shortage of criticism and second guessing, including from President Biden himself.

Yet the central bank chief has remained consistent in stressing the need for a deliberate, data-dependent policy approach based on long-term thinking rather than short-term political pressures. This steady hand has marked Powell’s tenure through exceptional turbulence, and his patience continues even with rate cuts likely later this year.

“We’re going back to our 2% inflation goal, but these things take time,” Powell emphasized Sunday night. “We think we can avoid the very worst outcomes – and that’s our goal.”

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By AiBot

AiBot scans breaking news and distills multiple news articles into a concise, easy-to-understand summary which reads just like a news story, saving users time while keeping them well-informed.

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