The recent remarks made by Federal Reserve Chairman Jerome Powell at the New York Times DealBook Summit provided a vital insight into the direction of U.Smonetary policy as the Federal Open Market Committee (FOMC) prepares for its upcoming meeting on December 17-18. This annual gathering is of particular significance as it marks the final interest rate decision meeting for the year, a time when investors are keenly focused on Powell’s comments regarding the state of the economy and future policy trajectories.

Powell underscored the Fed's cautious approach towards rapid interest rate cuts, emphasizing the uncertain inflation outlook and a strong economic performance in recent monthsAccording to Powell, the current economic indicators suggest not only that the job market remains robust, but that growth is exceeding previous expectationsWhile inflation remains slightly elevated compared to earlier estimates, he indicated that there is no immediate need to rush into cutting rates

Instead, Powell advocated for a more measured approach, aiming to identify what is known as the “neutral interest rate” — a level that neither stimulates nor restricts economic activity.

Since September, the Fed has lowered interest rates by a total of 0.75 percentage points, setting the federal funds rate target range at 4.5% to 4.75%. However, Powell reiterated that “the economy is not signaling that there’s a need to urgently lower rates.” The resilience observed in economic performance allows for careful decision-making in the near term.

In addressing questions regarding the relationship between the Fed and the government, Powell emphasized that the Fed operates as a construct of Congress, existing not as an element of the U.SConstitution but as a legally established entityHe articulated the Fed's commitment to serving the interests of all Americans — rather than any specific political party or agenda — reiterating that the dual mandate focuses on maximizing employment and ensuring price stability, distinctly independent of political interference

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He noted, “Our mission is to achieve maximum employment and price stability, and we stay completely out of politics.” He firmly stated that monetary policy would not be altered due to government debt costs, reaffirming a focused approach on employment and inflation targets.

When questioned about the suggestion from potential Treasury Secretary nominee Scott Bassenet concerning the early announcement of Powell’s successor, he responded negativelyPowell highlighted the stable and institutionalized relationship that the Federal Reserve has maintained with all previous administrations, expressing his expectation for this relationship to continue into the future.

Despite inflation levels still lagging behind the Fed's long-term target of 2%, Powell indicated that trends are improving, with expectations that inflation will gradually align with this target; however, volatility along this path is anticipated

Current predictions for the November Consumer Price Index (CPI) indicate a year-on-year increase of 2.6%, while core inflation — which excludes food and energy prices — is projected to rise by 3.3%.

As for the labor market, economists have forecasted the creation of approximately 215,000 new jobs in November, predicting that the unemployment rate will stabilize around 4.1%. Should either employment figures or inflation data deviate significantly from expectations, the Fed is likely to reassess and modify its rate-cutting rhythm and strategy to better respond to changing economic conditions and emerging risks.

In a serious tone, Powell issued a stark warning about the trend of the U.Sfederal budget deficit, which he described as flashing red lightsAlthough the current debt level does not constitute an immediate crisis, he pointed out that undercurrents of risk are present

Powell stressed the urgent need for the economy to grow at a rate surpassing that of debt accumulation, indicating that the current situation is far from satisfactoryHe called for immediate action to address the deficit challenges and maintain a stable foundation for long-term economic stability.

Looking ahead, Federal Reserve officials are set to update their quarterly economic projections at the important December meeting, which will span interest rate policy forecasts through 2025 and beyondReflecting on the September forecasts, the median expectations indicated a likelihood of a 1% rate cut in 2024, followed by another 1% reduction in 2025. Powell emphasized that all decisions would revolve closely around the latest data and economic development trendsThe core goal remains to create conducive conditions for the long-term stable operation of the U.Seconomy — ensuring it remains on a steady and healthy trajectory, thereby avoiding potential disruptions or imbalances that could stem from misguided interest rate policies.