Federal Reserve Chairman Jerome Powell said on November 14 that strong U.S. economic growth would allow policymakers to decide how quickly to cut interest rates. Powell argued that the economy was not sending any signals that the Fed needed to rush to lower interest rates.

According to the Fed chairman, the current economic strength allows the Fed to approach interest rate decisions cautiously. Powell also revealed that he is confident because the current assessment of economic growth is the best of any major economy in the world.

Powell admits strong economy gives central bank room to cut interest rates

The Federal Reserve chairman stressed that a strong economy with low unemployment, strong consumer spending and rising business investment will give the central bank leeway to cut interest rates.

“The economy is not sending any signals that we need to cut interest rates quickly.”

– Jerome H. Powell

Powell revealed that the current economic strength warrants a cautious decision. In fact, he acknowledged that the labor market is holding up well despite disappointing growth in October.

Powell, however, attributed the slow growth in the labor market last month to storm damage in the Southeast and labor strikes. He also stressed that the unemployment rate, which has been rising but has stabilized in recent months, remains low by historical standards.

Federal Reserve officials expect inflation to continue to decline

The central bank chairman also addressed inflation, citing progress across the board. Powell said Fed officials expect inflation to continue to move back toward the central bank's 2% target. The Fed chairman believes that achieving that goal could be challenging at times.

Still, inflation data this week showed both consumer and producer prices rising, with the 12-month rate moving away from the Fed’s guidance. The Fed chair stressed that the two figures point to inflation on the Fed’s preferred measure of 2.3% in October, or 2.8% excluding food and energy.

Powell's comments come a week after the Federal Open Market Committee cut the central bank's benchmark lending rate by a quarter of a percentage point. The FOMC cut the borrowing rate to a range of 4.5%-4.75% after a half-point cut in September.

The central bank chairman described the FOMC's move as a recalibration of monetary policy that no longer needs to focus on quelling inflation. Powell stated that the Fed now has a balanced goal of maintaining a healthy labor market.

Powell, on the other hand, remained tight-lipped about his own forecasts for December and 2025. He said the Fed is looking to guide its key interest rate to a neutral level that neither boosts nor slows growth, but he was uncertain about where that end point would be. While markets largely expect the Fed to cut another quarter point in December and then a few more times in 2025, Powell remained tight-lipped.

Powell further emphasized that the Fed believes that the strength of the economy and the labor market can be maintained by recalibrating its policy stance as appropriate. The Fed chairman also mentioned that with inflation falling sustainably to 2%, the Fed would shift policy over time to a more neutral setting, but the path to get there is still unclear.