Fed’s Jerome Powell Signals Cautious Approach To Future Rate Cuts

Federal Reserve Chairman Jerome Powell on Tuesday signaled that he is taking a cautious stance on future interest rate cuts.

Powell said during a speech at an event in Rhode Island that the Fed is presently facing a “challenging situation” due to inflation risks and lower employment. His comments come after the Fed announced last week that it was lowering its target range to 4.00%-4.25%, marking the central bank’s first rate cut of the year.

“Near-term risks to inflation are tilted to the upside and risks to employment to the downside—a challenging situation,” Powell said. “Two-sided risks mean that there is no risk-free path. If we ease too aggressively, we could leave the inflation job unfinished and need to reverse course later to fully restore 2% inflation.”

“If we maintain restrictive policy too long, the labor market could soften unnecessarily,” the Fed chair continued. “When our goals are in tension like this, our framework calls for us to balance both sides of our dual mandate.”

Powell went on to say that he believes the Fed’s interest rate stance is “still modestly restrictive.”

“The increased downside risks to employment have shifted the balance of risks to achieving our goals,” Powell said. “We therefore judged it appropriate at our last meeting to take another step toward a more neutral policy stance, lowering the target range for the federal funds rate by 25 basis points to 4 to 4-1/4%. This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments.”