US Federal Reserve Chairman Powell Hints at Interest Rate Cut in July

US Federal Reserve Chairman Powell stated in a press conference that if employment data were available, interest rates would probably be cut in July. Powell believes that interest rates will not return to the period of extremely low interest rates, citing that “instinctively, most people would say we probably won’t go back to that era where trillions of dollars of sovereign debt were trading at negative interest rates and long-term bonds were trading at negative interest rates.”

Key Takeaways from Powell’s Speech

No Return to Extremely Low Interest Rates

Powell emphasized that interest rates will be higher than they were during the period of extremely low interest rates. However, he did not specify how high interest rates would be.

No Signs of Recession

Powell stated that there are no signs of recession, citing that the economy is “generally strong” and that the labor market is “still at a very stable level.” He also mentioned that inflation is falling, and the labor market is not the source of inflationary pressure.

Interest Rate Cut in July

Powell hinted that if employment data were available, interest rates would probably be cut in July. He also mentioned that the aim is to keep inflation stable while ensuring the unemployment rate does not rise higher.

Full Text of Powell’s Speech

02:31:50 – Fed Chair Powell: The economy is generally strong and committed to maintaining economic strength

02:33:23 – Powell: Our decision today reflects growing confidence that the strength of the labor market can be maintained

02:34:23 – Powell: Our forecast shows that we expect GDP growth to remain robust

02:36:14 – Powell: The labor market continues to cool, indicators show that tensions are less severe than before the epidemic, and the labor market is not the source of inflationary pressure

02:36:32 – Powell: Inflation has eased significantly but remains above our target

02:37:28 – Powell: Long-term inflation expectations appear firmly under control

02:38:16 – Powell: Upside risks to inflation have weakened, downside risks to the labor market have increased

02:39:18 – Powell: Given risks, we will cut interest rates by 50 basis points today This adjustment will help maintain the strength of the economy and the labor market

02:39:43 – Powell: We are not following any default path, we will discuss decisions on a meeting by meeting basis

02:40:27 – Powell: Our forecast is not a plan or a decision, we will adjust policy as needed

02:41:21 – Powell: We can slow the pace of rate cuts if the economy remains robust; in the same way, we can respond if the labor market deteriorates

02:42:39 – Powell: We are reshaping our policy stance

02:42:58 – Powell: Nothing in our forecast suggests we are rushing to action

02:43:32 – Powell: Feeder forecasts are base scenario forecasts, what we do really depends on how the economy develops

02:44:05 – Powell: We can speed up or slow down or delay rate cuts if appropriate

02:46:05 – Powell: There is broad support for today’s decision to cut interest rates by 50 basis points, there are differences of opinion and diversity of opinion, but there is also a lot of consensus

02:47:36 – Powell: We have had a good start today on rate cuts, the committee does not feel that it is being rushed

02:48:49 – Powell: We don’t think we’re behind the curve, we think we’re operating in a timely manner

02:49:29 – Powell: But it is a sign of our commitment not to fall behind

02:50:04 – Powell: We are very patient about lowering policy rates, other countries have already cut rates

02:51:23 – Asked about the balance sheet, Powell said reserves are stable and adequate and expected to remain so for some time

02:52:32 – Powell: We have no plans to stop shrinking our balance sheet in the near future

02:53:40 – Powell: Our policies remain restrictive

02:55:25 – Powell: We don’t think the labor market needs to ease further for inflation to drop to 2%

03:00:54 – Powell: I think the neutral rate is probably much higher than it was before the pandemic

03:02:19 – When asked about the election, Powell says that our decisions have never been about politics or anything else, our job is to support the economy

03:03:27 – Powell: We are not declaring victory on inflation

03:09:15 – Powell: If jobs data had been available, we probably would have cut rates in July

03:09:48 – Powell: Everyone on the committee agrees that it is time to act