Federal Reserve Chair Jerome Powell indicated on Monday that the US economy is experiencing a broad-based slowdown in inflation, setting the stage for potential interest rate cuts in the coming months.
However, he emphasized that the central bank is not rushing to make significant changes and will assess economic data carefully before deciding on further rate reductions.
Speaking at the National Association for Business Economics conference in Nashville, Powell noted that inflation is gradually moving toward the Fed’s 2% target.
“Disinflation has been broad-based, and recent data indicate further progress toward a sustained return to 2%,” Powell stated.
He added that if the economy performs as expected, the Federal Reserve will gradually shift toward a more neutral interest rate policy that neither stimulates nor restrains economic activity.
Despite this progress, Powell warned of “two-sided” risks, signaling that the Fed’s future decisions will be made cautiously and on a meeting-by-meeting basis. He highlighted that while inflation has cooled, the US economy still faces uncertainties that could affect the pace and scale of any rate cuts.
The Federal Reserve has already reduced its benchmark interest rate, lowering it by half a percentage point in September. This brought the rate down from a 20-year high of 5.25%-5.50% to a range of 4.75%-5.00%. According to economic projections from the Fed, rates could fall further to 4.25%-4.50% by the end of this year, with a potential drop to 3.25%-3.50% by the end of 2025.
Powell’s comments come as investors debate whether the central bank will proceed with smaller, gradual rate cuts or respond more aggressively if economic conditions, such as a weaker job market or faster-than-expected inflation decline, demand it. Powell acknowledged that while the Federal Reserve is not in a hurry to cut rates, it would “do what it takes” if economic data worsens.
While recent inflation data showed a headline rate of 2.2%, close to the Fed’s target, core inflation, which excludes volatile food and energy prices, remains slightly higher at around 2.6%-2.7%. Powell expressed optimism, stating that broader economic conditions are conducive to further disinflation, with goods prices declining and services inflation returning to pre-pandemic levels. However, he noted that progress on housing inflation has been slow.
Looking ahead, the Federal Reserve will continue to monitor key economic indicators, including employment data, ahead of its next meeting in November. Powell underscored the Fed’s commitment to balancing inflation control with maintaining a strong labor market. While the path toward rate cuts seems likely, he emphasized that decisions will depend on incoming data and broader economic performance.
With the US economy showing signs of resilience, Powell believes the Fed is on track to achieve a “soft landing”—reducing inflation without causing a sharp rise in unemployment. However, he reiterated that the risks are balanced, and the central bank will proceed cautiously in its efforts to support economic stability.
With input from New York Post, Axios, and CNBC.
