Fed's Powell Signals More Rate Cuts, Emphasizes Data-Driven Approach

Federal Reserve Chairman Jerome Powell signaled Monday that the Federal Reserve may continue adjusting interest rates toward a more neutral level but emphasized that future rate decisions will depend on economic data and not follow a predetermined path.

“Looking forward, if the economy evolves broadly as expected, policy will move over time toward a more neutral stance,” Powell said in remarks prepared for an appearance at the National Association for Business Economics. A neutral interest rate is one that neither stimulates nor restricts economic growth.

No "Preset Course" for Future Rate Decisions

Powell highlighted that the path of future interest rates is not on "any preset course," noting that the risks to the central bank’s goals of stable inflation and maximum employment are balanced. The Federal Open Market Committee will "make our decisions meeting by meeting," he added, suggesting that incoming economic data will influence policy decisions.

Optimism About Economic Outlook and Soft Landing

Powell's comments suggest cautious optimism about avoiding a recession. He noted that the gap between gross domestic income (GDI) and gross domestic product (GDP) had previously raised concerns about the economy's strength, but that gap has since narrowed. “That’s been a downside risk that we’ve been monitoring, but there’s now no gap between the two,” Powell said. “That, I would say, removes a downside risk to the economy.”

Labor Market Strength and Disinflation

These remarks come after the Fed cut interest rates by 50 basis points, citing confidence that easing monetary policy would help support the labor market and guide inflation toward the 2% target. Despite rate adjustments, Powell noted that the labor market remains strong and that further cooling is not necessary to achieve the inflation goal.

“Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2 percent,” Powell said.