Powell says Fed will likely cut rates cautiously given persistent expense boost pressures

WASHINGTON — Chair Jerome Powell said Thursday that the Federal safety net will likely cut its key earnings rate slowly and deliberately in the coming months, in part because expense boost has shown signs of persistence and the Fed’s officials desire to view where it heads next.

Powell, speaking in Dallas, said that expense boost is edging closer to the central financial institution’s 2% target, “but it is not there yet.”

At the same period, he said, the economy is powerful, and the policymakers can receive period to monitor the path of expense boost.

“The economy is not sending any signals that we require to be in a hurry to lower rates,” the Fed chair said. “The strength we are currently seeing in the economy gives us the ability to way our decisions carefully.”

Economists expect the Fed to announce another quarter-point rate cut in December, after a quarter-point reduction last week and half-point cut in September.

But the Fed’s steps after that are much less obvious. In September, the central financial institution’s officials collectively signaled that they envisioned cutting their key rate four times in 2025. Wall Street traders, though, now expect just two rate reductions, according to forward contracts pricing tracked by CME FedWatch. And after Powell’s cautious remarks Thursday, traders estimated the likelihood of a Fed rate cut in December at just below 59%, down from 83% a day earlier.

The Fed’s standard earnings rate tends to influence borrowing rates across the economy, including for mortgages, auto loans and financing cards. Other factors, though, can also push up longer-term rates, notably expectations for expense boost and financial expansion.

For example, Donald Trump’s presidential election win has sent yields on Treasury stocks and bonds higher. It is a sign that investors expect faster growth next year as well as potentially larger apportionment deficits and even higher expense boost should Trump impose widespread tariffs and mass deportations of migrants as he has promised.

In his remarks Thursday, Powell suggested that expense boost may remain stuck somewhat above the Fed’s target in the coming months. But he reiterated that expense boost should eventually decline further, “albeit on a sometimes bumpy path.”

Under questioning, Powell also explained why he considers the Fed’s role as an independent federal agency to be crucial to its ability to fight expense boost. During his first term, Trump threatened to try to fire Powell for not cutting earnings rates. And during this year’s election campaign, Trump asserted that as president, he should have a “declare” on the Fed’s rate policies.

Powell said Thursday that the Fed’s independence from political concerns has made the community confident that the policymakers will keep expense boost low over period. That confidence, in turn, has helped reduce expense boost after it had spiked in the wake of the pandemic. When consumers and businesses expect expense boost to leisurely, they act in ways that assist hold it down — by, for example, not demanding high expense-of-living raises.

“The community,” Powell said, “believed that we would get expense boost down, that we would restore worth stability. And that’s ultimately the key to it.”

Powell declined to comment on other political topics, including the potential impacts of Trump’s proposals to impose sweeping tariffs and implement mass deport

Other Fed officials have also recently expressed uncertainty about how much more they can cut rates, given the economy’s steady growth and the apparent stickiness of expense boost.

As measured by the central financial institution’s preferred expense boost gauge, so-called core prices, which exclude volatile food and vigor costs, have been stuck in the high 2% range for five months.

On Wednesday, Lorie Logan, president of the Fed’s Dallas branch, said it was not obvious how much more the Fed should cut its key short-term rate.

“If we cut too far … expense boost could reaccelerate and the (Fed) could require to reverse path,” Logan said. “I depend it’s best to proceed with caution.”