Powell says Fed doesn’t need to be in a hurry to lower rates
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US Federal Reserve chair Jerome Powell reiterated policymakers are not in a rush to lower borrowing costs.
PHOTO: AFP
TEXAS – US Federal Reserve chairman Jerome Powell said officials are not in a rush to lower interest rates, adding that the central bank is pausing to see further progress on inflation following a string of rate reductions in 2024.
“We do not need to be in a hurry to adjust our policy stance,” Mr Powell said on Jan 29, noting that the economy remains strong, and interest rates are no longer restraining the economy as much as they had been.
Strong economic growth coupled with a solid labour market allows officials to wait for further evidence of cooling inflation before adjusting rates again. It also offers them time to evaluate how US President Donald Trump’s policies on immigration, tariffs and taxes may impact the economy.
“The committee is very much in the mode of waiting to see what policies are enacted,” Mr Powell said. “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”
When asked specifically about the potential for cutting rates at the Fed’s next meeting in March, Mr Powell reiterated that policymakers are not in a rush to lower borrowing costs. He stressed that the Fed wants to see “serial readings” suggesting further progress on inflation.
Taken together with comments from other officials in recent weeks, the remarks indicate that the Fed could remain on hold for some time.
Treasury yields rose following the Fed’s decision, before retreating during Mr Powell’s press conference. The S&P 500 closed lower.
Trump Criticism
The Fed’s latest decision came just over a week after Mr Trump’s inauguration
Mr Trump said in a post on Truth Social after the press conference that “because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it” through changes in energy production, regulation, international trade and manufacturing. He did not comment directly on interest rates or the decision on Jan 29.
In a post-meeting statement, officials repeated that inflation remains “somewhat elevated” but removed a reference to it having made progress towards their 2 per cent goal – a change Mr Powell said was not meant to send a policy signal. Fed policymakers also updated their description of the labour market.
“The unemployment rate has stabilised at a low level in recent months, and labour market conditions remain solid,” according to the statement.
Officials also reiterated that the risks to their inflation and employment goals are “roughly in balance” and that the “extent and timing” of additional rate adjustments will depend on incoming data and the outlook.
Fed officials want to keep some downward pressure on the economy to ensure inflation cools to their 2 per cent target, but a key question for policymakers right now is just how much interest rates are currently restraining activity.
Mr Powell said he believes policy is meaningfully but not highly restrictive, adding rates are “meaningfully above” the so-called neutral rate, a stance of policy that neither dampens nor stimulates growth. Officials have repeatedly revised up their estimates of this rate over the past year, amid stronger-than-expected economic activity and robust productivity growth.
In December 2024, Fed officials signalled they expect just two rate cuts for all of 2025, a shallower path of reductions than previously anticipated. Policymakers will update their projections on the economy and rates at their next meeting in March.
January’s pause in rate cuts comes amid increasing uncertainty about how inflation will evolve.
While progress towards the central bank’s inflation goal stalled in the last few months of 2024, the new year has brought signs that the downward trend may soon resume.
Inflation Data
Data published earlier in January showed an underlying measure of consumer prices rose by less than expected in December 2024, marking the first stepdown in six months. That and other data have driven economists to estimate that figures due Jan 31 will show the core personal consumption expenditures price index, which excludes food and energy, rose just 0.2 per cent in December 2024.
At the same time, Mr Trump’s tariff threats are injecting uncertainty into the outlook, with some economists warning they will be inflationary and others – including Fed Governor Christopher Waller – arguing the impact on inflation will generally be small and short-lived.
In December 2024, Mr Powell said some Fed officials had started incorporating potential government policies into their economic projections. Minutes from that gathering showed “almost all” participants noted the upside risks to the inflation outlook had increased, in part due to potential changes in trade and immigration policy.
The Fed maintained the monthly cap on the amount of Treasuries it allows to mature each month without being reinvested at US$25 billion (S$33.8 billion), while keeping the cap for mortgage-backed securities unchanged at US$35 billion. BLOOMBERG
