Federal Reserve Chairman Jerome Powell seems to have dismissed any consideration of interest rate cuts any time soon. Powell made the remarks during a speech to an audience in Atlanta late last week. According to the Fed Chair, the Federal Open Market Committee intends to maintain higher rates until they’re sure inflation has been tamed.
Market expectations on interest rate cuts
Recent months have seen many market experts calling for the Fed to relax its rate policies. Those calls have come amid signs that the Fed’s rate hikes are beginning to be felt in the U.S. economy. Powell seemed to acknowledge that progress in his comments, noting:
“As the demand- and supply-related effects of the pandemic continue to unwind, uncertainty about the outlook for the economy is unusually elevated. Like most forecasters, my colleagues and I anticipate that growth in spending and output will slow over the next year, as the effects of the pandemic and the reopening fade and as restrictive monetary policy weighs on aggregate demand.”
Powell did note that the FOMC is “moving forward carefully” to mitigate risks. However, some analysts have suggested that his most recent comments signal a likely end to any further hikes in rates.
That would be welcome news to the markets, which have enjoyed significant growth in the last month. Much of that growth has been attributed to many analysts’ belief that the Fed’s rate-hiking streak is over—and that the central bank is likely to start enacting interest rate cuts next year.
A dash of cold water
Still, those expectations could be unwarranted, given the current inflation reality. Notably, the rate of inflation has slowed from its 2022 high of 9.1%. However, it still stands well above the Fed’s target goal of 2%. Powell noted that fact in his remarks:
“Inflation is still running well above target, but it’s moving in the right direction. So, we think the right thing to be doing now is to be moving carefully, thinking carefully about how things are going and letting the data tell us what the story is. The data will tell us whether we’ve done enough or whether we need to do more.”
Powell’ promise confirmed that the Fed is “prepared to tighten policy further if it becomes appropriate to do so.” In short, any assumption that interest rate cuts are imminent may be nothing more than wishful thinking.