Powell hints at additional rate cuts, but emphasizes that the Fed is not following a predetermined path.

• Jerome Powell, the Fed Chair, stated on Monday that the recent 0.5% interest rate reduction should not be construed as an indication that future adjustments will be as forceful.
• He informed the National Association for Business Economics that we were not following any predetermined path.
• Powell expressed confidence in economic strength and sees inflation continuing to cool.

Jerome Powell, the Federal Reserve Chair, stated on Monday that the recent 0.5% interest rate reduction should not be construed as an indication that future adjustments will be as forceful.

During a speech in Nashville, the central bank chief stated that he and his colleagues will strive to balance reducing inflation with supporting the labor market and let the data inform their future decisions.

"If the economy develops as anticipated, policy will gradually shift towards a more neutral stance. However, we are not following a predetermined path. The risks are both positive and negative, and we will make our decisions on a case-by-case basis."

The Fed's key overnight borrowing rate was reduced by 50 basis points, which was announced less than two weeks after the Federal Open Market Committee approved the reduction.

The Fed's decision to raise interest rates was unexpected, as it had only done so in large increments during significant events like the Covid pandemic and the global financial crisis.

Powell stated that the decision to recalibrate policy was based on policymakers' belief that current conditions required a change in approach. Since March 2022, the Fed has been fighting surging inflation, but policymakers have recently shifted their focus to the labor market, which Powell described as "solid" but "cooled" over the past year.

Powell stated that the decision reflects the growing confidence that, with a recalibration of our policy stance, we can maintain strength in the labor market in a moderate economic growth environment and sustainably lower inflation to our objective.

According to Powell, achieving 2 percent inflation does not require additional cooling in labor market conditions. He did not reveal any clues about the direction of the next move.

Powell's statement that the Fed has not predetermined policy aligns with previous declarations.

The Fed is likely to approve a quarter-point reduction at its Nov. 6-7 meeting, but traders anticipate a more aggressive half-point cut in December.

Powell expressed confidence in economic strength and believes inflation will continue to decrease.

The Fed's preferred consumer price expenditures prices index revealed that inflation during August was approximately 2.2% annually. Although this is close to the central bank's 2% target, core inflation, which excludes gas and groceries, was still increasing at a 2.7% rate. Policymakers typically view core inflation as a more reliable indicator of long-term trends since food and energy prices are more volatile than many other items.

Despite the persistent increase in housing-related costs, which rose by 0.5% in August, Powell believes that the data will eventually reflect a decrease in rental prices.

"The decline in housing services inflation is slow, but it continues to decrease. The growth rate in rents charged to new tenants is low, and as long as that remains the case, housing services inflation will continue to decline. Broader economic conditions also contribute to this disinflation."

After the speech, Ellen Zentner, an economist from Morgan Stanley, was scheduled to interview Powell in a question-and-answer session.