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CNN
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Federal Reserve Chairman Jerome Powell said Wednesday that the strength of the U.S. economy allows the central bank to show some restraint in cutting interest rates.
“The U.S. economy is in very good shape, and there’s no reason why it won’t continue to be that way,” Powell said at an event hosted by The New York Times. “The good news is we can afford to be a little more cautious” about decisions on interest rate changes, the Fed leader said.
Powell’s comments came as the Fed is expected to cut interest rates for the third time this year at the end of this month. The central bank began lowering borrowing costs in September as inflation slowed and the job market began to cool.
But despite the Fed’s moves, borrowing hasn’t gotten much cheaper. That’s because interest rates on most loans, including mortgages and credit cards, are tied to the yield on the 10-year U.S. Treasury. Its yields rose last month to their highest levels since summer, but have only fallen slightly this week.
Bond yields have been trending higher on expectations that President-elect Donald Trump’s proposed economic policies could spur inflation, even as the Federal Reserve has worked to curb inflation over the past two years.
President Trump has pledged to impose massive tariffs on the United States’ three largest trading partners, which economists widely expect will drive up the prices of consumer electronics, agricultural products and some alcohol. These mandates, if enacted, would likely lead to faster inflation, prompting the Fed to halt rate cuts or possibly raise rates again.
Powell said there were still too many unknowns for the Fed to seriously consider the impact of tough tariffs, including which specific items would be subject to tariffs and the duration of the new trade policy.
Joseph Brusuelas, chief economist at RSM US, told X that he does not expect any further rate cuts after December or until March 2025 at the earliest.
President Trump last week promised on the first day of his second term to impose 25% tariffs on imports from Mexico and Canada and an additional 10% on Chinese goods. The move could raise consumer prices by 0.75% next year, according to estimates provided to CNN by economists at the Yale Budget Institute.
Estimates show that the latest rate proposal would represent a loss of approximately $1,200 in purchasing power per household in 2023. If Americans instead bought domestically produced goods or products from countries with lower tariffs, price increases would be slightly lower next year, at 0.65%. This also suggests that “consumers will be unable to find substitutes for almost everything subject to tariffs,” according to the analysis.
Still, some Fed officials say they don’t want to get ahead of themselves.
“The incoming administration and Congress haven’t enacted policy yet, so it’s too early to tell,” Fed Director Adrianna Kugler said at an event in Detroit on Tuesday. “Trade policy can affect productivity and prices, so it will be important to study it as details emerge.”
Atlanta Fed President Rafael Bostic told CNN he told a team of economists and forecasters to “wait as long as possible” before developing economic models to measure the impact different tariff scenarios might have on the U.S. economy. He said he is advising them to do so.
“When I first got here, our team was running models and doing different things, and then three days later we had another[proposal]and two days after that we had another one. We had another proposal,” Bostic said Monday. On the phone with a reporter. “Given that we have limited resources, we want to spend most of our energy on the things that have the most potential.”
For now, the Fed appears to be on track to cut interest rates for the third time this year. Wall Street is pricing in a 76% chance that the central bank will cut interest rates by a quarter of a percentage point at its Dec. 17-18 meeting, according to futures markets.
Inflation slowed over the summer but has trended slightly higher recently, but economists and Fed policymakers believe it is still trending downward. Chairman Powell has said in the past that the path for inflation toward the Fed’s 2% target is likely to be a bumpy one.
“Right now, we’re leaning toward supporting lower interest rates at the December meeting,” Fed Director Christopher Waller said Monday at an event hosted by the National Bureau of Economic Research. “But that decision will depend on whether the data available by then shows unexpected upside and changes my expectations about the path of inflation.”
When Trump takes office next month, the Fed will have more than just a slew of new trade policies to tackle. It is also likely to face the possibility that a sitting US president may intervene in policy decisions.
A Wall Street Journal report earlier this year revealed that President Trump’s economic advisers had drafted a plan to give the president more say over the central bank’s interest rate decisions and undermine the Fed’s independence. But the Fed’s ability to operate independently of political pressure is prized by investors and economists, as it allows the central bank to make data-driven decisions without considering the poll numbers of a sitting president. . This is also a tradition that is deeply rooted within the Fed.
“Fed independence is essential to the sanctity of the U.S. dollar,” billionaire investor Ken Griffin, CEO of Citadel, said Wednesday at the New York Times’ Dealbook Summit. Ta.
Powell said he looks forward to building a good relationship with the incoming Trump administration, including Scott Bessent, Trump’s nominee for Treasury secretary. Mr. Bessent previously floated the idea that Mr. Trump would name Mr. Powell’s successor ahead of his retirement in mid-2026 as a way to weaken Mr. Powell’s influence.
