Powell’s Statements on Fed Rate Cut: What You Need to Know

Powell Addresses US Legislators on Interest Rates

Speaking to US lawmakers, Powell was very cautious in offering a timeline for interest rate cuts, which investors are now betting will begin in September.

Fed’s Policy and Economic Outlook

The US central bank has been evaluating rate cuts after keeping its benchmark at a two-decade high for almost a year in an attempt to curb inflation.
While the labor market has held up well so far, a slowdown in employment data has increased pressure on Fed officials to start lowering the cost of borrowing.

What Message Is the Fed Sending to Global Markets?

The United States is “no longer an overheated economy,” with a labor market that has cooled down from pandemic-era extremes, according to Fed Chair Jerome Powell.
Powell told lawmakers that he did not want to “send any signal about the timing of potential future actions” on interest rates, aligning with recent efforts to focus more on economic data evolution and less on specific indications of what might happen and when.

Challenges Ahead for the Fed

With the presidential elections approaching and only two Fed meetings scheduled before then, Powell was questioned about the risks to the job market from a lack of rate cuts in the short term by Democrats, and about issues for families stemming from inflation remaining above the central bank’s 2% target by Republicans.

Market Expectations and Future Trends

Currently, the Fed’s overnight interest rate is between 5.25% and 5.50%, the highest level in 23 years resulting from 11 consecutive increases after inflation hit a three-decade high.
Markets expect the Fed to start cutting rates in September, possibly followed by another quarter-point reduction by year-end.
However, there was only one cut signaled by FOMC members at the June meeting, with the next one scheduled for July 30-31.