Washington, D.C. – Federal Reserve Chair Jerome Powell hinted at the possibility of more interest rate cuts during a conference in Nashville, Tennessee. While many investors were hoping for a half-point reduction by the end of the year, Powell emphasized the need for a measured approach to support the still-healthy economy. The recent rate cut of half a percentage point was a significant move by the Fed as it shifted its focus from combating inflation to bolstering the job market.
The stock market initially responded negatively to Powell’s comments, with the S&P 500 index falling by 0.6% before recovering to close 0.4% higher. Powell highlighted that the rate reductions would unfold gradually over time, depending on the data and the pace required. Economists are closely monitoring the upcoming jobs report, which could influence the Fed’s future decisions. If there are noticeable changes in the unemployment rate or hiring trends, a sharper rate cut may be considered later in the year.
During the September 18 meeting, Fed officials lowered the rate to 4.8% from a 20-year high of 5.3% and indicated plans for two more quarter-point rate cuts in November and December. Powell mentioned that this scenario remains the most likely outcome, with two additional cuts of a quarter-point each by the end of the year. The Fed aims to maintain a neutral stance with the key interest rate, neither stimulating nor hindering economic growth.
Despite a healthy economy and job market, the Fed is taking preemptive measures to sustain these conditions. Powell emphasized that the Fed’s goal is not to rescue a struggling economy or prevent a recession but to use its tools to support ongoing stability. Inflation remains within the target range at 2.2%, while core inflation, excluding food and energy categories, is slightly higher at 2.7%. Although the unemployment rate dropped to 4.2% last month, it is still higher than the record low of 3.4% reached last year.
The rate reductions implemented by the Fed are expected to lower borrowing costs for consumers and businesses, leading to reduced rates for mortgages, auto loans, and credit cards. Policymakers have differing opinions on further rate cuts, with some advocating for more aggressive measures and others urging caution. The primary motivation for the rate cuts is the slowdown in hiring and the uptick in unemployment, posing a threat to overall economic growth. The Fed is now focusing on both job creation and inflation, shifting from a previous emphasis solely on combating price increases.