US economy in solid shape, more rate cuts likely: Fed Chair Powell

The United States Federal Reserve Chair Jerome Powell has said more interest rate cuts are on the way but the process would take place gradually “over some time”. Noting that the economy was “in solid shape”, Powell hinted there could be “two more cuts this year” if it performs as expected.

“We’re looking at it as a process that will play out over some time, not something that we need to go fast on. It will depend on the data, the speed at which we actually go,” Powell said during a press interaction at a conference of the National Association for Business Economics in Nashville, Tennessee, the United States.

The Chair’s assertion followed the US Federal Reserve’s recent interest rate cut by 50 basis points (BPs). The rate cut, which happened on September 19 this year, was the first that the United States announced since 2020. It was a signal that the US economy had moved beyond its fight to contain inflation and was now focussed on improving the job market.

“If the economy performs as expected, that would mean two more cuts this year,” Powell noted at the Nashville conference, adding that the Fed was “recalibrating” its key interest rate rather than inflict rapid cuts. He hinted subsequent rate cuts would be “more neutral” so that they don’t adversely affect the economy.

“Our decision... reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labour market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2 per cent,” Powell said.

The Chair’s announcement had an impact on the markets, though. It subdued expectations of investors who were hoping for a definite announcement of a cut in key rate by December 2024, and the S&P 500 stock index dropped 0.6 per cent before subsequently rising 0.4 per cent higher.

Analysts, meanwhile, are looking at United States’ recent jobs report as significant data that could impact Federal policy later this year. If the unemployment rises or there is a slowdown in hiring, the scenario could lead to a sharper rate cut in the remaining months of the year.

“Overall, the economy is in solid shape. We intend to use our tools to keep it there,” Powell added in an official statement.