Federal Reserve Chair Jerome Powell recently spoke at the New York Times DealBook Summit, highlighting the robust condition of the U.S. economy, which is being viewed with envy by other major economies globally. Powell emphasized the need to maintain this positive economic trajectory and expressed optimism about both the economy's current status and the direction of monetary policy during his term.
Powell noted that the economy is growing at a steady rate of about 2.5%, with inflation dropping from over 7% to approximately 2.3%. He also acknowledged that although the path to achieve a more neutral level of interest rates over time is in progress, the focus remains on being cautious in the approach. The Fed is wary of the potential consequences of lowering rates too rapidly, which could potentially undermine the progress made on inflation, while moving cautiously is essential to avoid causing unnecessary harm to the labor market.
The recent interest rate cut of 0.25% in November, bringing the federal funds target range to 4.5% - 4.75%, was the lowest seen since February 2023. The Fed is currently in a silent period leading up to its upcoming interest rate decision in December, with a 75.5% implied probability of a 0.25% rate cut according to CME Group's FedWatch tool. The possibility of another rate cut in December would mark the third consecutive cut, although Powell had previously indicated a more measured approach in determining the appropriate level of rate cuts. The Fed's decision-making also takes into account key jobs data, with the Bureau of Labor Statistics set to report unemployment figures for November.