Federal Reserve Chairman Powell stated at a press conference following the interest rate meeting that the Federal Reserve is at or near a point of slowing down interest rate cuts, and decisions on rate cuts next year will be based on data, with an increase in rates seeming less likely.
The Federal Reserve announced a 25 basis point rate cut on Wednesday, aligning with market expectations, lowering the target range for the federal funds rate to 4.25%-4.5%. This marks the Fed's third consecutive rate cut, following reductions of 50 basis points and 25 basis points in September and November, respectively.
The latest dot plot indicates that policymakers expect two rate cuts in 2025, while the September forecast for the number of rate cuts next year had at one point reached four.
Despite the rate cut in December, Powell claimed it was a difficult but correct decision.
He pointed out that acting too slowly could unnecessarily weaken economic activity in the labor market, while acting too quickly could undermine the Fed's progress in controlling inflation. Therefore, the Federal Reserve is trying to find a balance between these two risks.
Affirmation of U.S. Economic Performance
Powell affirmed the performance of the U.S. economy, frequently using terms like stable, strong, and resilient.
He stated that the overall economic performance is strong; economic growth in the second half of 2024 is expected to be faster than anticipated; there is no reason to believe the likelihood of an economic downturn is higher than usual; it is clear that the U.S. has avoided a recession; and he is very optimistic about the economy.
Powell mentioned that policymakers generally expect GDP growth to remain strong.
Discussion on Inflation and the Labor Market
The Federal Reserve indicated that given the persistent year-over-year inflation data, it will continue to monitor the progress of inflation improvement in 2025.
"When considering further rate cuts, we will pay attention to improvements in inflation," Powell said. "We have seen almost no significant progress on 12-month inflation data."
Powell believes that consumers are feeling the effects of high prices more than the direct impact of high inflation.
"We are very aware that prices have risen significantly, and people are indeed feeling that, including for food, transportation, and heating costs. This global inflation surge has caused tremendous pain," he stated. "Despite the significant decline in inflation levels, people still feel the pressure of high prices, and this is the most intuitive feeling for consumers."
