US Federal Reserve Chair Jerome Powell said the recent performance of the US economy has been “remarkably good”, giving central bankers room to lower interest rates at a careful pace – comments that seem to indicate the pace of the rate cut cycle could be slower than anticipated.
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell said on Thursday in Dallas, Reuters reported.
“The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.”
US central bankers began lowering borrowing costs in September with an aggressive half-percentage-point cut, and then lowered the policy rate again by a quarter point last week.
They have also signalled a willingness to cut rates further so long as inflation continues to slow.
Powell’s comments, however, appear in line with some of his other colleagues who are advocating a go-slow approach to future rate reductions.
“We are on the verge of a pause,” said Lindsey Piegza, chief economist at Stifel Financial Corp.
“Clearly the Fed has taken out more policy firming than needed at this point.”
Piegza forecasts a pause by January and then just three cuts next year “at most.”
Powell’s remarks prompted traders to pare back expectations for a December rate cut, with the policy-sensitive yield on two-year Treasuries rising as much as eight basis points to 4.36 per cent on Thursday.
Swaps traders also lowered the chance to less than 60 per cent for the Fed to reduce rates at its next meeting that ends on December 18 – from roughly 80 per cent a day earlier.
In a moderated discussion that followed his speech, Powell added that uncertainty over the neutral level of rates — where policy is neither stimulating nor dampening growth — provides yet another reason to move cautiously.
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