U.S. Federal Reserve Chairman Jerome Powell attended an event at the Dallas Regional Chamber and delivered a speech highlighting the strength the U.S. economy is demonstrating, strength that will allow the Fed to “make the necessary decisions”. very calmly.” For Powell, “the economy is not giving any signal that we need to hurry to lower interest rates,” a message that resonated with investors. The bond increased its yield to maturity by 5 basis points after the president’s speech, a movement that was enough for the market to stop anticipating the rate cut that, until now, was expected for the December meeting.
With Powell’s latest message, investors took note and stopped anticipating a final rate cut this year. According to the swap market, it is now more likely that there will be a pause in December, before continuing the process of lowering rates that the Fed began in the last quarter of 2024. Powell acknowledges that he is aware that “Cutting interest rates too quickly could harm the progress we have made on inflation”but on the other hand warns that “doing it too slowly can harm economic activity and employment.”
It is on this last front, that of employment, that the Fed is now focusing, as it publicly acknowledged during its last monetary policy meetings. “The labor market is in good health and has calmed down after the overheating of a few years ago. It is now at more normalized levels, which are consistent with our employment mandate,” says Powell.
Thus, the Fed is now sticking to the message it has been repeating for months: it will make its decisions flexibly, meeting by meeting, on the basis of the macroeconomic data that will be known, and without precise direction. And that, If the December meeting were to take place now, it would appear that it would result in a pause in the rate cut process. At least that’s how investors see it.
