Powell says Fed to move 'carefully' on interest rates, 'soft landing'
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[December 02, 2023] By
ATLANTA (Reuters) -The risks of the Federal Reserve slowing the economy
more than necessary have become "more balanced" with those of not moving
interest rates high enough to control inflation, Fed Chair Jerome Powell
said on Friday, reaffirming the U.S. central bank's intent to be
cautious but also offering fresh optimism on its progress so far.
Noting that a key measure of inflation averaged 2.5% over the six months
ending in October, near the Fed's 2% target, Powell said it was clear
that U.S. monetary policy was slowing the economy as expected with a
benchmark overnight interest rate "well into restrictive territory."
"We are getting what we wanted to get" out of the economy, Powell said
during an event at Spelman College in Atlanta, noting that the "full
effects" of the Fed's 5.25 percentage points of rate hikes to date have
likely not yet been felt.
"Having come so far so quickly, the (Federal Open Market Committee) is
moving forward carefully, as the risks of under- and over-tightening are
becoming more balanced," he said, referring to the central bank's
As the Fed goes forward, "the data will tell us if we need to do more"
rate hikes, Powell said as he fielded questions from Spelman College
President Helene Gayle after his opening remarks at the historically
Powell reiterated, as his colleagues have in recent weeks, that it was
still too early to declare the Fed's inflation fight finished, with
prices rising 3.0% annually by the measure the central bank uses to set
its target. Prices as of October were up 3.5% when stripped of food and
energy costs, a measure the Fed sees as a better guide of inflation's
"We are prepared to tighten policy further if it becomes appropriate to
do so," he said.
But his remarks also reflected increased confidence that the current
5.25%-5.50% policy rate may well be adequate to complete the job. The
Fed meets on Dec. 12-13 and is expected to leave its benchmark rate
unchanged for the third meeting in a row.
"(Powell) used the word 'balanced,' and the message he's sending is the
Fed is not going to change its rhetoric, but things are going the way
they want them to go and they're not going to raise rates again," said
Peter Cardillo, chief market economist at Spartan Capital Securities.
"They're done, they're finished, and that's what the market thinks."
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Federal Reserve Chair Jerome Powell reacts to introductory remarks
before speaking on "Monetary Policy Challenges in a Global Economy"
during the international Monetary Fund's (IMF) annual research
conference on "Global Interdependence" in Washington, U.S., November
9, 2023. REUTERS/Kevin Lamarque/File Photo
U.S. stocks reversed earlier losses and were trading higher after
Powell's remarks, and the 2-year Treasury yield dropped to its
lowest level since June 13. Traders of interest rate futures added
to bets the Fed would leave rates steady at its December and January
policy meetings, and then start cutting rates at its March meeting.
Powell and Fed Governor Lisa Cook, who earned her bachelor's degree
at Spelman College, were scheduled to participate in a roundtable
discussion with local entrepreneurs later on Friday.
The Fed chief said policymakers still regard the uncertainty in the
economic outlook to be "unusually elevated," one factor in their
insistence that rates may still need to rise.
But he also said that the broad outlines of the hoped-for "soft
landing" seemed to be falling into place, with the job market still
strong even as growth in spending and output slows and price
"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 said.
"The pace at which the economy is creating new jobs remains strong,
and has been slowing toward a more sustainable level ... Wage growth
remains high, but has been gradually moving toward levels that would
be more consistent with 2% price inflation over time, and real wages
are growing again as inflation declines," he said.
Shortly before Powell delivered his remarks, a key reading on the
health of the U.S. manufacturing sector showed activity there
remained subdued and factory employment declined. The Institute for
Supply Management's Purchasing Managers Index has now indicated the
sector has been in contraction for 13 straight months, the longest
such run in more than two decades, as demand for goods continues to
(Reporting by Howard Schneider; Additional reporting by Ann Saphir,
Michael S. Derby and Stephen Culp; Editing by Paul Simao)
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