Powell signals Fed's caution over rate cuts

NEW YORK — US Federal Reserve Chairman Jerome Powell stressed on Tuesday that the Fed's policy is not on a preset course.

"We will continue to determine the appropriate stance based on the incoming data, the evolving outlook, and the balance of risks", under the commitment to supporting maximum employment and bringing inflation sustainably to the 2 percent goal, Powell said at the Greater Providence Chamber of Commerce 2025 Economic Outlook Luncheon in Warwick, US state of Rhode Island.

Near-term risks to inflation are tilted to the upside, while risks to employment are to the downside, Powell said. "Two-sided risks mean that there is no risk-free path. If we ease too aggressively, we could leave the inflation job unfinished …If we maintain restrictive policy too long, the labor market could soften unnecessarily," he said.

"Our framework calls for us to balance both sides of our dual mandate," he said, defending the Fed's 25 basis point rate cut at its meeting last week. "This policy stance, which I see as still modestly restrictive, leaves us well positioned to respond to potential economic developments."

The US economy is showing resilience in the midst of substantial changes in trade and immigration policies, as well as in fiscal, regulatory and geopolitical arenas, Powell said. But the overall economic effects of the significant changes remain to be seen, he said.

Powell said the tariff-related effects on inflation will be relatively short-lived, calling it a one-time shift in the price level. But a "onetime" increase does not mean "all at once," he said, adding the increase in the price level will likely be spread over several quarters and show up as somewhat higher inflation during that period.

And earlier on Tuesday, Fed Governor Michelle Bowman said the central bank should cut more quickly. Bowman, who was appointed by US President Donald Trump in his first term, said inflation appears to be cooling while the job market is stumbling, a combination that would support lower rates.

When the Fed cuts its key rate, it often over time reduces other borrowing costs for things like mortgages, car loans, and business loans.

"It is time for the (Fed) to act decisively and proactively to address decreasing labor market dynamism and emerging signs of fragility," Bowman said in a speech in Asheville, North Carolina. "We are at serious risk of already being behind the curve in addressing deteriorating labor market conditions."

On Tuesday, Austan Goolsbee, president of the Federal Reserve's Chicago branch, said in an interview on CNBC that the Fed should move slowly given that inflation is above its 2 percent target.

Federal Reserve on Sept 17 reduced the federal funds rate by 25 basis points. This adjustment resulted in a new target range for the federal funds rate of 4 percent to 4.25 percent.

Xinhua - Agencies