Poweller suggests another two reductions in the U.S. interest rates.
The American economy is doing well. Inflation is increasing at a slower rate. This is a trend that the Federal Reserve wants to maintain, which involves gradually lowering interest rates further.
Federal Reserve Chairman Jerome Powell anticipates two additional rate cuts amounting to 0.5% this year. He stated at a financial meeting in Nashville, Tennessee, "On the whole, the economy is doing well; we plan to utilize our tools to keep it that way." However, the Fed does not stick to a set plan. As Powell put it, "We will make our decisions meeting by meeting." The former investment banker appointed to the Fed board by then-President Barack Obama in 2012 added this comment.
"If the economy progresses as anticipated, that would mean there are two more cuts this year," Powell stated in a panel discussion. He alluded to forecasts that most central bankers predict two cuts of 0.25% each. The Fed's Open Market Committee has two more meetings this year. "If the economy evolves as expected, monetary policy will shift over time towards a more neutral stance." The next Fed meeting is scheduled for November 6 and 7.
The Fed has recently reversed its rate hike and drastically reduced its policy rate to a new range of 4.75% to 5%. The central bank has further reductions in mind. According to its latest rate projections, the policy rate could decrease by half a percentage point this year. Following further reductions, the federal funds rate is projected to settle in a range of 2.75% to 3% by 2026.
The Fed aims to keep inflation in check without hindering the economy. The central bank closely monitors the price fluctuations of a fixed basket of goods that reflect consumers' personal spending, known as the PCE index. This index increased by 2.2% year-over-year in August, bringing it closer to the Fed's target of 2%.
According to the central bank, current indicators suggest that the economy is continuing to grow at a "solid pace." The Fed currently predicts that GDP will grow by 2% in 2024 and maintain that growth rate in the coming years. However, the OECD expects U.S. growth to slow down, but to be cushioned by the loosening of monetary policy. For this year, the organization of industrialized nations forecasts a GDP increase of 2.6% and 1.6% for 2025.
Despite the Fed's plans for rate cuts, Powell acknowledged, "I'm not going to commit to more than what we've announced." Even if the economy performs as expected, the Fed's monetary policy might not adopt a more aggressive stance, as Powell cautioned, "I'm not going to go beyond what we've signaled."
