Powell: "Too Early to Predict Timing of Rate Cuts... Tightening Effects Not Fully Reflected"

A Sharp Critique on the End of Interest Rate Hikes and Expectations of Cuts in the First Half of Next Year

Jerome Powell, Chair of the U.S. Federal Reserve (Fed), said on the 1st (local time) that it is too early to predict the timing of an interest rate cut, criticizing market expectations that rate hikes have ended and cuts will occur in the first half of next year.

Jerome Powell, Chair of the U.S. Federal Reserve (Fed) / Photo by Yonhap News

He also described the recent slowdown in inflation indicators over the past few months as "welcome," but dampened market hopes for rate cuts by stating that the effects of tightening have not yet fully materialized.

During a conversation with President Helen Gail at Spelman College in Atlanta, Georgia, Powell said, "It is still too early to confidently conclude that we have achieved a sufficiently tight stance, and the same goes for guessing the timing of rate cuts." He added, "If we determine that it is appropriate to tighten monetary policy further, we are prepared to do so."

This statement is interpreted as a reiteration of the policy stance Powell expressed at the press conference following the Fed’s decision last month to hold the benchmark interest rate steady at 5.25?5.50%. Market sentiment has been leaning toward the view that the Fed has effectively ended rate hikes as October inflation indicators slowed. Market experts are increasingly forecasting that the Fed will begin cutting rates in the first half of next year to prevent a hard landing for the economy.

Regarding the slowdown in inflation, Powell also mentioned that the effects of tightening policies have not yet been fully realized. He said, "Inflation has remained at an annualized rate of about 2.5% for over six months until last month," adding, "The lower inflation indicators seen in recent months are welcome, but to achieve the 2% inflation target, such progress must continue." He further stated, "Monetary policy is believed to affect economic conditions with a lag, and the full effects of tightening are likely not yet felt."

He added, "Going forward, we will make policy decisions at upcoming meetings by carefully balancing new economic data, its implications for economic and inflation outlooks, and various risks."

Meanwhile, the Fed is scheduled to hold its final Federal Open Market Committee (FOMC) meeting of the year on the 13th of this month to decide on monetary policy.