By Jeanna Smialek
Jerome Powell, the chair of the Federal Reserve, avoided sending a clear signal about when the central bank would begin to cut interest rates even as he welcomed a recent cool-down in inflation.
“Today I’m not going to be sending any signals one way or the other on any particular meeting,” Powell said while speaking at the Economic Club of Washington on Monday. “Just to ruin the fun right at the beginning.”
The Fed’s chair was speaking after several inflation reports in a row suggested that price increases were moderating in earnest, a development that had spurred some economists to think that it could make sense for officials to cut interest rates sooner rather than later. The Fed meets at the end of July and then again in September, and investors have been largely expecting that officials will begin to lower borrowing costs at the September meeting.
Economists at Goldman Sachs wrote in a research note Monday that cutting rates this month could be appropriate, given how much inflation had come down.
“If the case for a cut is clear, why wait another seven weeks before delivering it?” Jan Hatzius, Goldman’s chief economist, wrote in the note, explaining that while his team still thinks that a rate cut in September is more likely, there is a “solid rationale” for an earlier move.
But Powell did little to open the door to an earlier move during his Monday remarks. While he said recent inflation reports had added to central bankers’ confidence that price increases were coming down, he avoided giving a clear signal about when officials would have enough confidence to lower borrowing costs.
Other members of the Fed’s policy-setting committee have also avoided signaling exactly when a rate cut might happen.
“Being specific about ‘Is it July, is it September, or is it some other time at a later date?’ is less relevant than saying: ‘Here’s how the data will affect the decision-making,’” Mary C. Daly, the president of the Federal Reserve Bank of San Francisco, said in an interview with reporters last week.
Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said in an interview Friday that he never took the possibility of a rate move at a given meeting “off the table,” but he also said there was little practical distinction between cutting interest rates in July and cutting them in September.
“The actual economic difference between those is hard to detect,” Goolsbee said.
Still, Daly and Goolsbee have signaled that they are watching the job market carefully, wary of overdoing their inflation-fighting efforts by keeping interest rates too high for too long.
The Fed has two big jobs — to bring and keep inflation under control, and to foster a strong job market. It tries to achieve those by adjusting interest rates. Officials have been keeping rates high, at 5.3% since last July, to make it expensive to borrow money, slowing demand and helping to wrestle down price increases.
But as inflation has come under control, officials are increasingly focused on bringing it the rest of the way down without causing a recession that sends the unemployment rate shooting higher in the process.
“I would say that it’s a fairly big communications signal that you hear so many of us now, and Chair Powell importantly, talking about how important the labor market is,” Daly said last week.
Goolsbee said he had been watching carefully as unemployment had moved up in recent months, because of a rule in economics — called the Sahm Rule for economist Claudia Sahm — that suggests that a quick jump in joblessness is a clear signal of recession. While the jump in joblessness has not yet been big enough to fit the rule, it has been close.
“As we always say in economics, unemployment goes up like a rocket and down like a feather,” Goolsbee said. But he also noted that those old rules may not necessarily apply in this environment, because “this is a super weird business cycle.”
For his part, Powell suggested that he believed that the economy was headed for a gentle economic comedown, one in which inflation would fade without a big weakening in the job market. He said Monday that a “hard landing” did not seem likely at this point.
The Fed’s chair also addressed two big issues hanging over Washington on Monday. He acknowledged the attempted assassination of former President Donald Trump over the weekend, calling the attempt “a very sad day for our country” and saying that “political violence has really no place in our society.”
Powell was also asked if he would stay on to the end of his term in 2026. Trump was not a fan of Powell, whom he initially elevated to the role of Fed chair, a position to which President Joe Biden has since reappointed him. Given that, there have been some questions about whether Powell will stay on should the former president win reelection.
Powell answered with one word: “Yes,” he will serve to the end of his term, he said.
When asked if he would accept a possible reappointment, he said: “I have nothing for you on that today.”
Comments