Important points
Federal Reserve Chairman Jerome Powell is scheduled to give a speech next week that could shed light on the trajectory of the central bank’s key interest rate in the coming months.
The Fed has been keeping interest rates high for years to combat inflation, but has been lowering them to stimulate the economy and prevent a spike in unemployment.
Financial market participants are looking for clarity on the pace of rate cuts, and investors are unsure how deep the Fed will cut rates at its next meeting in November.
The Fed’s key interest rate will likely be cut in the coming months, but how fast will it be cut? Fed Chair Jerome Powell may shed some light on the trajectory of interest rates in his speech on Monday, and financial market participants are certainly watching.
Powell is scheduled to speak at the National Association for Business Economics’ annual meeting in Nashville. Although the title of his speech, “Views from the Federal Reserve,” gives little clue as to what he will say, his main speech was about the Fed’s policy committee’s pivotal decision to cut interest rates sharply. This is the first time since September 18th, when the decision was made. The central bank’s main interest rate is the first since 2020.
Fed officials, including Chairman Powell, have signaled that the central bank intends to lower the federal funds rate in the coming months, which would put downward pressure on borrowing costs for mortgages, credit cards and all types of loans. Become. But it’s unclear how quickly they’ll do it.
Traders are betting on another big rate cut
Financial markets are wondering whether the Fed will implement its standard rate cut of 25 basis points at its next meeting of the Federal Open Market Committee on November 6-7, or whether it will cut rates by another 50 basis points following September’s mega rate cut. Opinions are divided on whether to cut interest rates. As of Friday afternoon, investors had priced in a 55% chance of further rate cuts, according to CME Group’s FedWatch tool, which forecasts interest rate movements based on federal funds futures trading data.
Powell and other Fed policymakers said their next actions would be determined by economic indicators regarding inflation, particularly the labor market. The Fed aims to adjust interest rate cuts to encourage enough borrowing and spending to accelerate the economy and support the job market, but not so drastically as to reignite high inflation. In recent months, inflation has fallen steadily while unemployment has risen, putting pressure on the Fed to cut interest rates sooner than previously expected.
Mr. Powell has some explaining to do.
Mr. Powell could also use the speech to assert the Fed’s credibility and assure the public that the Fed is determined to rein in inflation at all costs.
In a press conference after this month’s meeting, Chairman Powell said why the Fed was cutting interest rates so drastically when inflation was still above the central bank’s 2% target and unemployment was still relatively low by historical standards. He faced questions from reporters about whether he had done so. . At least one member of the Fed’s policy committee shares those concerns, with Fed Director Michelle Bowman voting against a big rate cut in September, preferring a smaller rate cut instead.
Since the decision, new economic data has strengthened the view that the U.S. economy is not in recession or widespread job losses, but is progressing at a steady pace.
Revised second-quarter gross domestic product (GDP) figures scheduled for Thursday confirmed that the economy is growing at a healthy 3% rate. According to the Bureau of Economic Analysis, gross domestic income (GDI), another indicator of economic growth, also grew steadily, with an upwardly revised rate of 3.4%.
“Both gross domestic product (GDP) and gross domestic product (GDI) showed strong economic growth last year, and uncertainty about the state of the economy remains “It is decreasing,” he said in the commentary. “However, the market is unfazed by these data and is still pricing in a 40bps rate cut on November 7th, suggesting that market participants do not think Fed policy will depend on the data. Fed Chairman Powell will need to explore these issues and deliver a strong performance at NABE next week. ”
