US Fed's Jerome Powell in no hurry to cut interest rates

US central bank chairman suggests strong economy allows policymakers to take cautious approach in future decisions

Federal Reserve chairman Jerome Powell. AFP

Federal Reserve chairman Jerome Powell said on Thursday that the US central bank is in no rush to cut interest rates further, urging a cautious approach as some inflation pressures remain.

“The economy is not sending any signals that we need to be in a hurry to lower rates,” Mr Powell said in Dallas, Texas. While the Fed's preferred inflation gauge is almost at its 2 per cent target, he said: “It is not there yet."

Mr Powell was quoting the Personal Consumption Expenditures (PCE) price index, which he estimated at 2.3 per cent in October. He also expects inflation to continue to moderate towards 2 per cent, “albeit on a sometimes-bumpy path”.

He also said that strong economic activity, buoyed by robust consumer spending, is among other factors that has led the Fed to be cautious in dialling back on policy.

Fed officials have largely shifted their focus to the labour market, which Mr Powell said is in “solid condition” despite a recent jobs report heavily affected by a Boeing strike and back-to-back hurricanes. Still, the unemployment rate remains low at 4.1 per cent.

Mr Powell was speaking one week after the Fed cut interest rates by 25 basis points, bringing its target range to 4.50-4.75 per cent. That followed a previous cut of 50 basis points.

After increasing rates to a 22-year high, the Fed began cutting them in September to bring it closer to the so-called neutral level, which is the point at which policy neither contracts nor expands the economy.

“We are moving policy over time to a more neutral setting. But the path for getting there is not preset,” Mr Powell said.

Traders expect the Fed will cut interest rates again in December, according to CME Group data, although the future beyond that is uncertain. Most traders believe the Fed will pause cutting rates in January.

Clouding the outlook is president-elect Donald Trump, whose promises during the 2024 election campaign to impose tariffs and enact a mass deportation strategy have sent Treasury yields soaring on concerns that they could raise inflation and force the Fed to keep rates higher.

Mr Powell was pressed on tariffs and deportations during a moderated session, although he tried to steer clear of talking about politics.

“We don't have a view on the right level of immigration,” he said, adding that a surge of immigrants into the labour force in 2023 helped to support US economic growth and “may or may not have” had an effect on rebalancing the labour market.

“It will take time to really understand that, but it certainly made for a bigger economy and we're coming off the back of a severe labour shortage, so there was room at that time for people to get work, and they went to work at roughly the same level as non-immigrants,” he said.

Minneapolis Fed President Neel Kashkari this week said a mass deportation of immigrant workers would disrupt the labour supply, although the full economic impact is uncertain.