U.S. Federal Reserve Chair Jerome Powell stated that the central bank has no urgency to lower interest rates, pointing to solid economic growth, a strong job market, and inflation still above the 2% target.
This suggests that higher borrowing costs may persist, potentially creating challenges for both businesses and households.
At an event in Dallas, Powell stated, "The economy is not sending any signals that we need to be in a hurry to lower rates." He noted that the economy's current strength enables the Fed to proceed with greater prudence.
He pointed to key drivers of economic growth, emphasizing the 4.1% unemployment rate and 2.5% annual GDP growth, both surpassing projected potential. Rising consumer spending, fueled by increased household incomes, along with a rebound in business investment, also plays a significant role.
Despite the economy's resilience, inflation remains a pressing issue. Recent data indicates that core personal consumption expenditures (PCE) increased by 2.8% last month, marking the fourth consecutive month without significant progress in combating inflation.
"Inflation is running much closer to our 2% longer-run goal, but it is not there yet," Powell remarked, noting that the central bank will maintain a close watch on inflation indicator trends.
Powell's remarks affected the market, with short-term Treasury yields rising as traders adjusted their predictions for the Fed's next moves. While the rate was once expected to drop to 2.9% by 2026, market participants now anticipate it will remain closer to 3.9%.
Economists still see a 0.25% rate cut in December as likely, but they believe the pace of monetary easing may slow as soon as early next year.
The economic agenda of the new Trump administration adds complexity to the situation. Potential tariffs, immigration restrictions, and other measures could significantly affect the labor market, inflation, and overall economic growth.
Powell refrained from making direct comments on the policy implications, stating that the Fed would need time to evaluate the impact of decisions still to be made. "The answer is not obvious until we see the actual policies," he said.
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