Federal Reserve Chair Jerome Powell said the US economy’s strength means the central bank can show restraint with cutting interest rates. The comments come as the Fed is expected to cut interest rates later this month for the third time this year. However, borrowing costs have not decreased significantly despite the rate cuts.
Powell stated that the good news is that the US economy can afford to be more cautious when making decisions on rate moves. He attributed this to the economic momentum and reduced inflation expectations. The Fed’s decision-making process has been affected by President-elect Donald Trump’s proposed economic policies, which could stoke inflation.
Trump has pledged to impose massive tariffs on America’s three biggest trading partners, potentially leading to faster inflation and prompting a response from the Fed. Powell acknowledged that there are still unknowns regarding the impact of tariffs on the economy.
The Fed is expected to maintain its current interest rate trajectory. Joseph Brusuelas, chief economist at RSM US, predicted no additional rate cuts until March 2025 at the earliest. The potential tariff increase could cause consumer prices to rise by 0.75% next year, according to an estimate by economists.
Fed officials emphasize that it is too early to make judgments about the impact of tariffs on productivity and prices. Atlanta Fed President Raphael Bostic advised his team to wait before developing economic models gauging the possible effects of different tariffs scenarios.
Despite concerns over Trump’s proposed policies, the Fed seems to be on track for a third rate cut this year. The central bank is pricing in a 76% chance of cutting rates by a quarter point at its December meeting. Powell has stated that inflation’s journey toward the Fed’s 2% goal will likely be bumpy.
The potential impact of Trump’s presidency on the Fed’s policy decisions raises concerns about the independence of the central bank. The Fed’s ability to operate independently from political pressure is essential for making data-driven decisions, according to investors and economists.
Source: https://edition.cnn.com/2024/12/04/economy/fed-chair-powell-trump-dealbook/index.html