On July 31, Federal Reserve Chair Jerome Powell hosted a much-anticipated press conference in Washington, D.C., on the Fed’s monetary policy decisions and provide insights into the central bank’s assessment of the economy, inflation, and employment. Some of the highlights from his speech include:
Jerome Powell: No Interest Rate Cuts
One of the major outcomes of the two-day meeting is the committee’s decision not to change interest rates, keeping them in the current range of 5.25%-5% set over a year ago.
The interest rate hike became effective on July 27, 2023. The goal was to tame pandemic-induced inflation. June 2024 registered the first decrease in inflation since mid 2020, a modest but promising 0.1% decline.
Considering the nearly 22% increase in consumer inflation since 2020, the Federal Reserve Board decided it was still premature to lower interest rates.
“The (Fed) has stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%. Incoming data for the first quarter of this year did not support such greater confidence.”
Jerome Powell in a July 15, 2024 conference in Washington D.C.
Economic Conditions
In his speech, Powell noted that despite economic growth, the Fed will maintain its current interest rate while monitoring economic activity and inflation trends.
Holding interest rates steady will provide a predictable environment for businesses to plan, invest, and grow without sudden rate changes that could destabilize the economy.
Related: Bank of Japan’s Interest Rate Raise Causes Market Crash
In his address, Powell emphasized that the central bank can’t afford to mess up the timing of removing the fixed rate. Cutting the rates too soon could reignite inflation, while waiting too long could weaken the economy and job market.
Future Rate Adjustments
Wall Street has been chomping at the bit for lower interest rates.
Low interest rates make borrowing money cheap, and investors are eager to borrow money and invest it. Economically, it can be good for the average American too. When investors pour capital into companies, the job market surges.
However, Jerome Powell cautioned that while the Federal Reserve considered lowering interest rates, it is too early. Putting a dent in the damage of four years’ worth of inflation rates running double — or in the case of 2022, quadruple — the Fed’s 2% target requires more than one month of slowed inflation growth.
Jerome Powell Signals September Rate Cut Possible
Powell cautiously suggested that future rate changes that will be data-dependent, specifically inflation and economic growth. He also says that the only reason rates could be cut by September is if officials were confident that their goal of reaching 2% is feasible.
“If we were to see inflation moving down … more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting,” he said.
Not Playing Politics
With upcoming Presidential elections in November, several politicians have warned Powell about the effects the Federal Reserve would have on voters.
Some Republicans fear that waiting till a few weeks before the elections would push more people to the left, as a primary complaint of voters against the Biden administration is the high inflation rate and consumer prices.
Related: Second Trump Term Would Fuel Inflation, 16 Nobel-Winning Laureates Say
Powell, however, stressed that the central bank’s only concern is the state of the economy and getting inflation back to the target of 2% — regardless of the election.
