Continued economic growth, a strong labor market and above-target inflation mean that The US Federal Reserve does not need to rush to lower rates and can deliberate carefully, the president of the central bank said this Thursday, Jerome Powell.
The official said that US central bankers still believe that inflation “is on a sustainable path towards 2%” that will allow the entity to move monetary policy “over time to a more neutral environment.”
But the pace of rate cuts “is not predetermined”, Powell said at a Dallas Fed event, in which he added that “The economy is not sending any signals that we should rush to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
His comments come as the Fed and investors assess how the continued economic strength of the United States and the uncertainty surrounding the economic agenda of the new administration of Donald Trump, particularly with respect to tax cuts, tariffs and the crackdown on immigration, can affect economic growth and inflation.
After an election that may have revolved around voters’ perceptions of the country’s economic ills, Powell said that the current situation is actually “remarkably good”, reported Reuters.
The strengths of the economy include a rate of Unemployment is still down from 4.1%, an economic growth that Powell described as a “strong” annual rate of 2.5%, which remains above the Fed’s estimates of underlying potential, consumer spending driven by rising disposable income and growing business investment. However, key inflation indicators remain above target.
October Personal Consumption Expenditure Price Index has not yet been releasedbut Powell said the recent data feeding into it indicates that PCE excluding food and energy costs rose at a rate of 2.8%, the fourth consecutive month in which that indicator has stagnated.
The Fed uses the headline PCE to set its 2% targetwhich Powell said was likely around 2.3% in October, while the “core” measure is seen as a guide to the direction of core inflation.
Rates: what the Fed will do at the last meeting of the year
Traders expect the Fed to cut interest rates by another quarter percentage point in Decemberbut between Trump’s election for a new term as president and rigid inflation, they anticipate that the Federal Reserve will cut less next year.
Powell said the central bank still has faith in continued disinflation, but is also on guard as it monitors issues such as housing costs.
The main aspects of inflation “They have returned to rates closer to those consistent with our goals (…) We are watching closely to make sure that is the case.”
“Inflation is much closer to our long-term 2% target, but we are not there yet,” stood out.
Source: Ambito
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