WASHINGTON (AP) — Federal Reserve Chair Jerome Powell on Tuesday expressed a cautious stance regarding future interest rate cuts, contrasting sharply with other officials within the Fed who have advocated for a more immediate approach. In his remarks in Providence, Rhode Island, Powell highlighted the risks involved in achieving both maximum employment and stable prices amidst the current economic conditions.
Despite a recent rise in the unemployment rate, Powell underscored that the Fed had agreed to lower its key interest rate last week. However, his comments suggested that he does not foresee any further rate cuts in the near future. Powell warned that if the Fed were to implement rate cuts “too aggressively,” it might leave inflation issues unresolved and necessitate a reversal of course to raise rates later. Conversely, he also noted that maintaining high rates for too long could lead to an unnecessary weakening of the labor market.
Powell's cautious approach mirrors the sentiments he expressed during a news conference following the Fed's recent decision to cut rates for the first time in 2023. He admitted that it is “challenging to know what to do,” illustrating the delicate balancing act the Fed must perform in navigating economic uncertainties.
This cautious tone is juxtaposed with the views of certain members of the Fed's rate-setting committee, who are advocating for quicker cuts to combat the current economic situation. On Monday, Stephen Miran, a Fed governor appointed by President Donald Trump, suggested that the Fed should decrease the key rate to between 2% and 2.5%, a significant reduction from its current level of approximately 4.1%. Miran, a key advisor in the Trump administration, anticipates returning to the White House after his term ends in January, although he may be appointed to a longer term on the Fed board.
Additionally, Fed governor Michelle Bowman, who was also appointed by Trump, called for more rapid rate cuts in light of cooling inflation and a struggling job market. In a speech delivered in Asheville, North Carolina, Bowman stated, “It is time for the Fed to act decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility.” She expressed concern that the Fed may already be lagging in addressing deteriorating labor market conditions and emphasized the need for a more responsive policy moving forward.
Despite the calls for urgency from some officials, Powell’s recent statements reflect minimal urgency for immediate action. Other Fed officials have similarly cautioned against hastily reducing rates, reflecting a growing divide within the rate-setting committee. On Tuesday, Austan Goolsbee, president of the Federal Reserve's Chicago branch, emphasized in an interview with CNBC that the Fed should proceed cautiously, given that inflation has exceeded the target rate of 2% for over four and a half consecutive years and is currently on the rise.
Last week, following the Fed's decision to cut its key rate from about 4.3% to approximately 4.1%, policymakers indicated that they might consider two more rate cuts in the future. While they acknowledged concerns over slower hiring, they reiterated that inflation remains above their target level, indicating the complexity of the current economic landscape.
