Federal Reserve Chair Jerome Powell indicated on Monday that the central bank is likely to proceed with additional rate reductions aimed at reaching a more balanced economic position. However, he emphasized that future policy changes will not follow a predetermined path and will be adjusted based on evolving economic data and conditions.
“Looking ahead, if economic developments align with expectations, monetary policy will gradually shift toward a neutral stance,” Powell stated in prepared remarks before his appearance at the National Association for Business Economics.
A neutral interest rate is one that neither stimulates nor hinders economic growth, serving as a midpoint in the Fed’s approach.
Powell also clarified that the direction of rate changes will remain flexible, citing that risks to achieving the Fed’s dual objectives stable inflation and maximum employment are currently balanced.
Members of the Federal Open Market Committee will continue to assess conditions “meeting by meeting,” Powell emphasized, reiterating that their decisions will be guided by incoming economic data.
Powell’s comments reflect a more optimistic outlook for the economy, suggesting that the Fed may be more confident in its ability to prevent a recession. He noted that concerns regarding the disparity between Gross Domestic Income (GDI) and Gross Domestic Product (GDP) have diminished recently, alleviating some of the worries about economic strength.
“That (GDI versus GDP) discrepancy has been a downside risk we were closely monitoring, but the gap has now closed,” Powell said. “This effectively removes a potential risk to economic stability.”
The statements follow the Fed’s recent 50 basis point rate cut, which was implemented as part of efforts to support the labor market and guide inflation toward the 2% target.
Despite the adjustments, the labor market remains robust, Powell noted, adding that there’s no immediate need for further cooling to bring inflation to the desired level.
“Disinflation has been broad-based, and the latest figures show further progress toward our 2% goal,” Powell concluded.
