Federal Reserve Chairman Jerome H. Powell acknowledged that inflation is slightly higher than expected, but emphasized that the central bank can be more cautious in cutting interest rates due to strong economic growth and sticky prices.
Powell stated at The New York Times’s DealBook Summit on Wednesday that the economy is growing stronger than anticipated, with inflation coming in a bit higher than initially thought. However, he also noted that the Fed can afford to be more cautious as it tries to find the neutral interest rate.
The strong economic growth has fueled consumer spending, and the job market remains robust despite slowing down slightly. Wage growth remains solid, and productivity is showing signs of meaningful improvement. This combination of factors means that America has avoided a painful recession, which was once seen as likely after the Fed sharply raised interest rates in 2022 and 2023 to control inflation.
However, this resilience also makes the Fed’s next steps more challenging. The central bank cut interest rates in September in response to cooling inflation, and officials forecast further rate cuts this year and into 2025. But with unemployment stabilizing, growth accelerating, and inflation proving stickier than expected, officials must now decide how much to lower interest rates from their current range of 4.5-4.75 percent.
Powell noted that the picture is stronger than it was previously, but also emphasized that the Fed needs to be cautious due to uncertainty surrounding tariffs promised by President-elect Trump. The central bank will continue to monitor and model potential tariffs, which could impact consumer prices and inflation.
The Fed chair’s comments underscore the complexities of the current economic situation. While Powell did not comment directly on a possible rate cut in December, his remarks highlight the challenges facing policymakers and everyday workers alike. With a strong economy and uncertain tariffs, officials must navigate this delicate balance to avoid exacerbating inflation while supporting growth.
Source: https://www.nytimes.com/2024/12/04/business/dealbook/jerome-powell-federal-reserve-inflation.html