Powell says that the issue of when to start reducing rates must be “addressed carefully”
6 FEB, 2024
By Johanna Zidani from RankiaPro Europe
The president of the Federal Reserve (Fed), Jerome Powell, stated that the issue of when to start reducing interest rates should be addressed "carefully".
In an interview with the iconic "60 Minutes" program on the American CBS network -broadcast on Sunday-, the journalist asked Powell: "You have avoided a recession. Why not lower rates now?".
The president of the Fed responded that "we have a strong economy. Growth is advancing at a solid pace. The labor market is strong: 3.7% unemployment. And inflation is going down. With such a strong economy, we feel we can address the issue of when to start reducing interest rates carefully".
When last week the Fed kept interest rates for the fourth consecutive meeting at 5.25%-5.5%, Powell said in the subsequent press conference that they want to see "more evidence" that inflation is sustainably decreasing to 2%.
In Sunday's interview, he reaffirmed this: "You know, we want to see more evidence that inflation is sustainably decreasing to 2%. We have some confidence in that. Our confidence is increasing. We just want a little more confidence before taking that important step of starting to cut interest rates".
Asked about what they are looking at, Powell responded: "Basically, we want to see more good data. It's not that the data isn't good enough. It's that there really are six months of data. We just want to see more good data in that sense. It doesn't have to be better than what we've seen, not even as good. It just has to be good. And then, we hope to see that".
"That's why almost all members of the Federal Open Market Committee (FOMC, for its acronym in English) believe it will be appropriate to lower interest rates this year", he added.
When will the Fed start the cycle of lowering interest rates?
To the question of when that moment to start lowering interest rates will occur, Powell said that "it will depend on the data. You know, the best we can do is weigh the risk of acting too soon against the risk of doing it too late and make that judgment in real time".
"That moment is coming, I would say, according to what we expect. The kind of things that would make us want to act sooner would be if we saw weakness in the labor market or if we saw that inflation is really persuasively dropping. The kind of things that would make us want to act later would be if inflation were more persistent, for example," he added.
The Fed chairman also emphasized that they are not going to wait for inflation to reach 2% to start the cuts. "We are committed to returning inflation to 2% over time. I have said that we would not wait to get to 2% to cut rates. In fact, we are actively considering now cutting rates in the future, and in the last 12 months, inflation, you know, is not at 2%. It's between 2% and 3%. But it's moving down in a way that gives us some comfort.
The journalist asked him if at the next meeting in March, with the data so far, a rate cut is more likely or less likely.
Powell responded that "that moment is coming. We have said that we want to have more confidence that inflation is dropping to 2%. And I would say, I think that it is unlikely that this committee will reach that level of confidence in time for the March meeting".
"So, I would say that is not the most likely or base scenario. However, all but a couple of our participants believe it will be appropriate for us to start reducing the restrictive stance by cutting rates this year. And so, it certainly is the base scenario that we will do that. We are simply trying to choose the right time, given the overall context," he concluded.
The interview was conducted last Thursday, after the FOMC meeting and before the latest employment data was known.
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