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What do Powell's comments on rate cuts mean for Americans?

Powell said the Fed isn't ready to start cutting interest rates until the central bank has more confidence in the strength of the economy.
What do Powell's comments on rate cuts mean for Americans?
Posted at 3:33 PM, Mar 06, 2024

The Federal Reserve is in no rush to cut interest rates. This could mean more frustration for Americans, who have already faced almost two years of elevated borrowing costs on everything from car loans to mortgages.

Federal Reserve chairman Jerome Powell testified before a house committee Wednesday, celebrating a slowdown in inflation. But he was cautious to say much else. 

"The economic outlook is uncertain," Powell told the House committee on Monetary Policy Wednesday as part of his semiannual testimony to Congress. "Ongoing progress toward our 2% objective for inflation is not assured."

Powell said the Fed isn't ready to start cutting interest rates until the central bank has more confidence in the strength of the economy. However, he believes there will be a cut sometime this year. 

The inflation rate is getting closer to the Fed's 2% target range, currently sitting at 2.4%. That's down from its 7.1% peak in June of 2022.

Powell testified Wednesday that interest rates have likely peaked, hovering at 5.4%, a 23-year high.

In December, Fed officials projected three rate cuts this year, but Powell wasn't ready to say when those would happen.

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"They can take their time here. They don't need to provide additional support to the economy by cutting rates," said wealth management adviser Adam Phillips. 

He adds that the timing of rate cuts is a delicate balance.

"The risk in cutting rates too aggressively too soon is that inflation comes roaring back, and they essentially end up declaring victory too early and we get a resurgence in inflation that would only damage their credibility."

The Fed has hiked rates eleven times since 2022.

The latest numbers show that despite some price jumps in January, inflation is slowing. But Phillips says interest rate cuts won't necessarily mean lower prices.

"Listening to Jerome Powell today, he acknowledged the fact that we may not return to the normal that we knew prior to the pandemic," Phillips said. "The hope in all of this is that wages continue to remain solid and that employment remains solid so we don't see a lot of layoffs in getting inflation to a more normal level."

Phillips adds the Fed will be looking at wages, jobs and the bond market to determine when they'll cut rates and by how much.

"We do have confidence in them. They will defeat inflation," said Phillips.

Powell will return to Capitol Hill on Thursday for the second and final day of his testimony to Congress.


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