Fed Chair Powell's Warning: Don't Count on Rate Cuts Just Yet!



by FARUK IMAMOVIC

Fed Chair Powell's Warning: Don't Count on Rate Cuts Just Yet!
© Getty Images News/Alex Wong

There has been growing speculation among investors that the Federal Reserve may be nearing the end of its interest rate hiking cycle, with some even anticipating rate cuts as early as the first half of 2024. However, Federal Reserve Chair Jerome Powell has urged caution in jumping to such conclusions.

Speaking at Spelman College in Atlanta, Powell emphasized the careful approach the Fed is taking. “Having come so far so quickly, the [Fed] is moving forward carefully, as the risks of under- and over-tightening are becoming more balanced,” he stated.

Powell’s comments indicate that it may be too early to confidently assert that a sufficiently restrictive stance has been achieved, or to speculate on the timing of any policy easing.

Market Expectations and Economic Indicators

The central bank's upcoming policy meeting on December 12-13 is drawing close attention, with expectations that the Fed will maintain interest rates at their 22-year high for the third consecutive meeting.

Despite Powell’s cautious tone, some investors are betting on rate cuts by mid-next year. This perspective is partly fueled by the current state of the US housing market, which has been struggling with declining sales and low affordability.

A relaxation of monetary policy could lead to lower mortgage rates, which are influenced by the Fed's actions and the yield on the 10-year US Treasury note. Yet, Powell and other Federal Reserve officials are not ruling out the possibility of another rate hike, especially if inflation remains persistent.

This potential hike is not currently reflected in futures markets, leading to uncertainty about how the Fed might signal the end of its rate hiking cycle. Fed officials have acknowledged signs that economic conditions are conducive to a continued decline in inflation, citing a slowing economy and restrictive interest rates.

Fed Governor Christopher Waller noted, “All in all, it seems like output growth is moderating as I had hoped it would, supporting continued progress on inflation”. Similarly, New York Fed President John Williams expressed optimism about inflation falling slightly above 2% next year but also warned that "additional policy firming may be needed" if the slowdown in inflation stalls or reverses.

Federal Reserve