US Federal Reserve Chair Jerome Powell highlighted a cautious outlook after the central bank cut key interest rates by 0.25% to 4.25% to 4.5%.
Inflation has eased but remains slightly elevated, he said, with projections of 2.4% for this year and 2.5% for 2025. Powell noted that inflationary pressures are now “roughly balanced”.
“As we think about further cuts, we’re going to be looking for progress on inflation. We have been moving sideways on 12-month inflation” Powell told a news conference after the Fed cut rates and signaled a slowing of the pace of future reductions.
“As we go forward, we’re going to want to be seeing further progress on bringing inflation down, and keeping a solid labor market.”
On the labor market, Powell remarked that while employment rates remain solid and less tight than before, they are still low. These conditions allow the Fed to approach future rate decisions more “cautiously”.
Fed rate projections for interest rates indicate 3.9% for 2025, trending lower to 3.4% by 2026 with the pace of cuts expected to be slower.
“I think that a slower pace of (rate) cuts really reflects both the higher inflation readings we’ve had this year and the expectations that inflation will be higher,” Powell said, adding, “We don’t think we need further cooling in the labor market to get inflation below 2%.”
The unemployment rate, while still low at 4.2%, has risen nearly a full percentage point in the past two years. Concern over rising unemployment contributed to the Fed’s decision in September to cut its key rate by a larger-than-usual half point.
Also read: US Federal Reserve cuts key interest rates by 0.25%
Powell said he was not sure about how the tariffs proposed by incoming President Donald Trump and other countries would impact consumer prices. He said they will take a wait and watch approach.
(With agencies inputs)
