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Fed Chair Powell says no need to rush in adjusting policy stance or cutting interest rates

by admin February 12, 2025
February 12, 2025
Fed Chair Powell says no need to rush in adjusting policy stance or cutting interest rates

Federal Reserve Chair Jerome Powell emphasized a cautious approach to interest rate adjustments on Tuesday, citing persistent inflation and continued economic resilience.

In prepared remarks for his testimony before the Senate Banking Committee, Powell signaled that the central bank sees no urgency to alter its current stance.

“With our policy stance now significantly less restrictive than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said.

His testimony kicks off the Fed’s semiannual monetary policy report to Congress, with a follow-up appearance before the House Financial Services Committee on Wednesday.

Powell’s comments align with expectations on Wall Street, where futures markets suggest the Fed is unlikely to cut rates at its next meeting in March.

Inflation progress remains slow but steady

After a series of rate cuts in 2024, the Federal Open Market Committee (FOMC) held its benchmark federal funds rate steady in January at a target range of 4.25% to 4.5%.

Powell acknowledged that while inflation has eased, it remains above the Fed’s long-term goal of 2%.

“Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance,” Powell said.

“The labor market is not a source of significant inflationary pressures.”

The latest data from the personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation, showed a 2.6% year-over-year increase in December.

Meanwhile, the January consumer price index (CPI), a broader inflation gauge, is set for release on Wednesday, just before Powell testifies before the House.

Powell emphasized the importance of striking the right balance in monetary policy, cautioning against both premature easing and prolonged restraint.

“We know that reducing policy restraint too fast or too much could hinder progress on inflation,” Powell said.

“At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”

Fed to review policy framework in 2025

Beyond short-term rate decisions, Powell highlighted that the Fed is undertaking a broader review of its policy framework, examining its strategy, tools, and communications.

This reassessment, scheduled for completion by late summer, comes five years after the last major review, which resulted in a shift to a more flexible approach to inflation targeting.

“Our review will include outreach and public events involving a wide range of parties, including Fed Listens events around the country and a research conference in May,” Powell said.

While Powell reaffirmed that the Fed remains committed to its 2% inflation target, he noted that the review would consider lessons from the past five years and explore whether adjustments are necessary to better serve the economy.

The next FOMC meeting is set for March 18-19, with futures markets indicating a less than 10% chance of a rate cut.

Investors and policymakers alike will closely watch upcoming inflation reports and economic data to gauge when the central bank might feel confident enough to begin easing its policy stance.

The post Fed Chair Powell says no need to rush in adjusting policy stance or cutting interest rates appeared first on Invezz

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