O chair do Federal Reserve, Jerome Powellsaid on Tuesday (23) that the Central Bank of the United States is in a “challenging situation”, With a continuous risk of inflation higher than expected at the same time as weak employment increased concern for the health of the labor market.
In comments prepared for the Greater Providence Chamber of Commerce in Rhode Island, Powell has given few indications of when he thinks the Fed can cut the interest rate again, noting that there is danger in either cutting very fast and risking a new inflation, as well as reducing interest very slowly and possibly causing unnecessary increase in unemployment.
“Short -term risks for inflation are leaning up and risks to employment, down – a challenging situation,” Powell said, repeating the language used last week when the Fed cut off his basic interest rate at 0.25 percentage point.
The current rate, in the range of 4% to 4.25%, is still considered high enough to resist price pressures in the economy, but “makes us well positioned to respond to potential economic developments. Our policy does not follow a predefined course.”
Although this phrase is a kind of mantra for the Fed authorities, it has gained special resonance now, with strong opinions emerging on both sides.
This week, several presidents of regional FEDs asked caution In new cuts, considering that the risk balance still hangs for inflation, while two Fed directors warned that monetary policy is very restrictive and that more cuts are needed to protect the job market.
FED authorities anticipate reductions of 0.25 percentage point At the October and December meetings of the Fed, and investors expect a high probability that they realize.
But “if we loosen monetary policy very aggressively, we can leave the process about unfinished inflation and we will need to reverse the situation later to completely restore 2%inflation. If we maintain restrictive policy for a long time, the job market could weaken unnecessarily,” said Powell.
Powell has agreed that there is reasons for concern for the job market, with recent job growth on average around 25,000 in the last 3 months, “being below the ‘balance’ rate required to maintain the unemployment rate constant.”
But other job indicators were “widely stable,” he said.
Meanwhile, inflation remained “a little high”, with tariffs increasing product prices. Although this impact probably decreases, he said, it will take time, and it is up to the Fed “to ensure that this punctual increase in prices does not become a continuous inflation problem.”
The Fed is under intense pressure from the Trump administration to cut interest, with an attempt by the president to dismiss director Lisa Cook pending in the Supreme Court, and government officials questioning the emergency programs of the Fed during the pandemic and during the 2007 to 2009 economic crisis.
Powell said these efforts, under extraordinary circumstances, probably helped the economy avoid much worse results.
“These two consecutive historical world crises have left scars that will accompany us for a long time. In democracies around the world, public trust in economic and political institutions has been challenged. Those of us who are in public service at this time need to focus firmly in performing our critical missions in the midst of stormy seas and powerful winds,” said Powell, whose mandate ended in Chair as Chair. May, with Trump already evaluating his successor.
“Despite these two unique and extremely large shocks, the US economy performed as good or better than that of other major advanced economies around the world.”
