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Key Takeaways
- Fed Chair Jerome Powell said the Federal Reserve is not guaranteed to repeat Wednesday’s interest-rate cut.
- The Fed is caught between its missions to keep inflation low and employment high, and both are moving in the wrong direction.
- Powell said the Fed would cut rates further only if economic data indicated that was the right move, brushing off questions about the political pressure the central bank is under to cut rates.
The Federal Reserve may have lowered borrowing costs a tiny bit on Wednesday, but don’t count on more rate cuts in the months ahead.
That was the message from Federal Reserve Chair Jerome Powell at a press conference Wednesday following the Fed policy committee’s decision to reduce its benchmark interest rate by a quarter of a percentage point. According to the summary of economic projections released today, Fed officials on average expect two more such rate cuts in the Fed’s remaining two meetings of the year. But Powell said those projections were dependent on data and not guaranteed.
“We’re in a meeting-by-meeting situation,” Powell said. “Actual decisions we make are going to be based on the incoming data, the evolving outlook and the balance of risks at the time the decisions are actually made.”
WHY THIS MATERS TO YOU
The Federal Reserve’s fed funds rate influences borrowing costs on credit cards, car loans, and other debt, as well as returns on CDs and high yield savings accounts. Powell’s comments today suggest those rates may fall further in the months ahead as the Fed cut rates, but not if inflation runs too hot or the job market stops deteriorating.
Powell’s comments shed some light on the outlook for borrowing costs in the months ahead. He emphasized the Fed’s dual mission of keeping interest rates low and employment high, noting it had become more complicated in recent months. President Donald Trump’s tariffs, which have pushed up consumer prices while hindering the job market, forcing the Fed into a dilemma when it comes to interest rates.
The Fed’s Dilemma
The Fed’s playbook calls for it to lower interest rates, pushing down borrowing costs to stimulate the economy if the job market is weak. High inflation calls for higher interest rates to discourage spending and allow supply and demand to rebalance. Both at the same time is harder for the Fed to deal with.
“It is such an unusual situation,” Powell said. “Ordinarily, when the labor market is weak, inflation is low, and when the labor market is really strong, that’s when you’ve got to be careful about inflation. So we have a situation where we have two-sided risk, and that means there’s no risk-free path, and so it’s quite a difficult situation for policymakers.”
Powell’s cautious language was a significant contrast to the summer of 2024 when he much more decisively stated the Fed was pivoting to a campaign of rate cuts after holding the fed funds rate at a two-decade high for more than a year. The Fed cut rates by an entire percentage point over three meetings that year, as the economy looked headed for a “soft landing” from the post-pandemic burst of inflation.
No Politics To See Here
Powell downplayed the Fed’s other dilemma: the extraordinary political pressure President Trump has placed on the Fed to rapidly cut interest rates, and his efforts to take over the Fed’s board of governors by ousting FOMC member Lisa Cook. Powell said the Fed was only considering its economic mission when making its interest rate decisions, and not taking politics into account at all.
“I would say we’re doing our work exactly as we always have,” Powell said.
The newest member of the Fed’s 12-member policy committee, Trump appointee Stephen Miran, was the only dissenter at today’s meeting, voting for a cut of half a percentage point.
The Fed’s remaining two policy committee meetings this year are scheduled for Oct. 28-29 and Dec. 9-10.
