Powell flags careful, patient approach after Fed cuts rates

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By Howard Schneider

WASHINGTON (Reuters) -The Federal Reserve cut interest rates by a quarter of a percentage point on Thursday, and its policymakers took note of a job market that has “generally eased” while inflation continues to move towards the U.S. central bank’s 2% target.

“This further recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we move toward a more neutral stance over time,” Fed Chair Jerome Powell said in a press conference following the central bank’s decision to reduce its benchmark overnight interest rate to the 4.50%-4.75% range.

“We think that the economy, and we think our policies, are both in a very good place, a very good place.”

At the same time, Powell gave little guidance on how fast and far the Fed will cut rates from here. He noted that while the “baseline” projections from September for moving the policy rate gradually toward the neutral level, where economic activity is neither stimulated nor restrained, are still valid, the exact pace of cuts and ultimate destination will depend on incoming data.

“We’re trying to steer between the risk of moving too quickly and perhaps undermining our progress on inflation or moving too slowly and allowing the labor market to weaken too much,” he said. “We think that the right way to find neutral, if you will, is carefully, patiently.”

Powell spoke shortly after the rate-setting Federal Open Market Committee issued its unanimous decision to lower borrowing costs.

Treasury yields trimmed losses and the yield curve flattened after the release of the policy statement. Futures markets continued to price in another quarter-percentage-point rate cut at the Fed’s Dec. 17-18 meeting, its final one of the year.

LANGUAGE TWEAK

The Fed’s policy statement noted that risks to the job market and inflation were “roughly in balance,” repeating language from the statement released after its Sept. 17-18 meeting.

The new statement also slightly altered the reference to inflation, saying that price pressures had “made progress” towards the Fed’s objective, rather than the prior language that it had “made further progress.”

The personal consumption expenditures price index excluding food and energy items, a key gauge of inflation, has changed little in the last three months, running at a roughly 2.6% annual rate as of September.

Powell said that the language change was not meant to signal that inflation has been sticky. The Fed, he said, has always expected progress to be bumpy, and policymakers have gained confidence that inflation is on a sustainable path to the 2% goal.

Asked how the Fed might react to policies expected from Republican President-elect Donald Trump when he returns to power in January, Powell declined to speculate, saying the Fed would follow its usual process of modeling potential effects once policies have taken shape.

Trump, who defeated Democratic Vice President Kamala Harris in Tuesday’s presidential election, campaigned on promises ranging from steep tariffs on imports to a crackdown on immigration that could have a broad and unpredictable impact on the economic landscape the Fed will navigate in coming months as officials try to keep inflation contained and close to the central bank’s target.

Powell was appointed to lead the central bank by Trump during the Republican leader’s first term in the White House and then clashed with him over rates policy in 2018 and 2019.

Asked on Thursday if he would resign if requested, Powell did not equivocate.

“No,” he said.

(Reporting by Howard Schneider and Michael S. Derby; Editing by Paul Simao)