By Howard Schneider
NASHVILLE, Tennessee (Multibagger) - In a speech at a National Association for Business Economics conference, Federal Reserve Chair Jerome Powell hinted at further rate cuts to address ongoing disinflation in the U.S. economy. Powell emphasized that the Fed is not on a preset course and will make decisions meeting by meeting as economic conditions evolve.
Powell stated, "Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2%," the Fed's targeted inflation level. He also mentioned that if the economy evolves as expected, policy will move over time towards a more neutral stance.
At its September meeting, the Fed cut rates by half a percentage point, with projections showing expectations for further rate declines. However, there is uncertainty among investors about whether the Fed will opt for quarter-percentage-point cuts or larger cuts if economic conditions worsen.
Following Powell's remarks, stocks slightly eased and Treasury yields rose. Rate futures traders are leaning towards a quarter-percentage-point rate cut in November.
Powell's reference to "two-sided" risks indicates an ongoing debate as data accumulates. The upcoming U.S. employment report for September will be a crucial factor in the Fed's decision-making process.
Overall, Powell emphasized that the economy is in solid shape, with a strong job market and low unemployment rate. He reassured that the Fed will utilize its tools to maintain economic stability.
Analysis:
The Federal Reserve Chair's remarks suggest that the central bank is concerned about ongoing disinflation in the U.S. economy, prompting further rate cuts to stimulate economic activity. This could impact various sectors, such as stocks and Treasury yields, as investors react to the Fed's actions. Powell's emphasis on the solid state of the economy and the Fed's commitment to maintaining stability provide reassurance to market participants.