Federal Reserve Chair Jerome Powell expressed optimism about working with the incoming Trump administration and stated that the Fed could proceed more cautiously in lowering interest rates.
“We can afford to be a little more cautious as we try to find neutral,” Powell said, referring to the rate level that neither stimulates nor restrains the economy.
The Fed’s preferred inflation measure accelerated in October, supporting a cautious approach to further rate cuts. Powell also noted that downside risks in the labor market have diminished.
The Federal Open Market Committee (FOMC) is scheduled to meet on December 17-18 in Washington. While Powell did not confirm whether he favors a rate cut, analysts widely anticipate a 25-basis-point reduction this month, followed by a pause in January.
Confidence in Treasury Nominee and New Administration
Powell expressed confidence in working with Scott Bessent, the Treasury nominee, saying, “I fully expect we’ll have the same general kinds of relationships, especially with the Treasury Department.”
Regarding Bessent’s past suggestion of appointing a “shadow Fed chair,” Powell dismissed the idea as unlikely under the new administration: “I don’t think that’s on the table at all.”
Economic Outlook
Powell described the economy as being “in remarkably good shape,” with growth stronger than expected. While inflation remains below the Fed’s 2% target, Powell sees no reason why solid economic conditions can’t persist.
Economists expect the Fed to continue its cautious rate reductions into 2024. Priya Misra of JPMorgan Asset Management noted that Powell maintained flexibility in his comments, setting the stage for slower rate cuts next year.
Author’s Analysis
Powell’s remarks highlight a deliberate and measured approach to monetary policy, balancing optimism about the economy with caution regarding inflation and labor market conditions. Positive relations with the new administration could reduce potential friction, but the Fed’s decisions will remain data-dependent.
This analysis reflects the author’s opinion and should not be taken as financial advice. Market participants are encouraged to consult professional advisors before making investment decisions.
