Fed Chair Powell signals stance on 'interest rate cuts'

Federal Reserve (Fed) Chair Jerome Powell shared his assessments on current issues during an appearance on the "60 Minutes" program broadcast on CBS television.

Stating that inflation has declined over the past year and shown a quite sharp drop in the last 6 months, Powell noted that they have made good progress but that "the job is not yet done."

Powell stated that the US economy is strong, saying, "Growth is continuing at a solid pace. The labor market is strong: unemployment is at 3.7 percent and inflation is coming down. With the economy this strong, we feel we can approach the question of when to start cutting interest rates carefully."

"WE WANT A LITTLE MORE CONFIDENCE"

Reiterating that they want to see more evidence that inflation is sustainably falling to 2 percent, Powell said, "We have some confidence. Our confidence is increasing. We want a little more confidence before we take the very important step of starting to lower interest rates."

Powell stated that they want to see better data, noting that this does not mean the current data is not good enough.

Pointing out that almost all members of the Federal Open Market Committee (FOMC) believe it will be appropriate to lower interest rates this year, Powell responded to the question of "when" by saying it will be "data-dependent."

Powell said, "The best thing we can do is to weigh the risk of moving too soon against the risk of moving too late and make that decision in real time." Stating that based on their expectations, he could say "that time" is coming, Powell noted that seeing weakness in the labor market or convincing evidence that inflation is falling would increase their willingness to act sooner.

When asked about the "danger of acting too soon" regarding interest rate cuts, Jerome Powell noted the following:

"The danger of moving too soon is that the job is not fully done and that the good readings we've had for the last six months somehow turn out not to be a true indicator of where inflation is heading. We don't think that's the case. The prudent thing to do is to give it some time and see that the data continues to confirm that inflation is moving down to 2 percent in a sustainable way."

Stating that he believes there is a higher probability of seeing inflation settle well above the 2 percent target if they act too soon on interest rate cuts, Powell said, "Because of the strength we see in the economy, we feel we can be careful as we approach this decision."

Powell expressed that if they are late in cutting interest rates, policy would be too tight, which could put pressure on economic activity and the labor market.

"WE ARE TRYING TO CHOOSE THE RIGHT TIME"

Reiterating that they are committed to returning inflation to 2 percent over time but will not wait to reach 2 percent before cutting rates, Powell stated that they are currently actively considering lowering interest rates, and while inflation is not at 2 percent, the downward trend is reassuring.

Powell stated that they are focused on using the Fed's tools to ensure interest rate cuts happen, and that choosing the time to begin reversing restrictive monetary policy is part of that.

Emphasizing that they are trying to choose the right time to start interest rate cuts, Powell stressed that they want to be more confident that inflation will fall to 2 percent. Powell said, "I don't think it's likely that the committee will reach that level of confidence by the time of the March meeting, which is seven weeks away."

"WE DO NOT TAKE POLITICS INTO ACCOUNT IN OUR DECISIONS"

When asked to what extent the presidential elections in the US this year will affect the Fed's timing, Powell replied, "We do not take politics into account in our decisions. We never do."

When asked if the Fed was too slow to recognize inflation in 2021, Powell assessed, "Looking back, we can say it would have been better to tighten policy earlier."

Explaining that the economy was very dynamic at that time and they thought it would correct itself quite quickly, Powell said, "We thought inflation would disappear quite quickly without our intervention. That it would be transitory. While there wasn't a consensus among economists worldwide, it was a very common view. The data was, in a way, consistent with that assessment, with that hypothesis, up to the point where it wasn't. So, in the fourth quarter of 2021, it turned out that inflation was not transitory in the sense I mentioned."

Regarding the question about the US national debt, Powell stated that they try not to comment on fiscal policy, but that in the long run, the US is on an unsustainable fiscal path, which means debt is growing faster than the economy.

Stating that he believes it is widely understood that it is time to prioritize fiscal sustainability, Powell noted that the sooner this happens, the better.

When asked about the possibility of another banking crisis stemming from real estate due to the decline in the value of office buildings nationwide following the remote work model, Powell stated that he does not think that is very likely.