Fed can afford to be 'careful' with policy due to strong US economy, Powell says

Fed Chair Jerome Powell Holds News Conference Following The Federal Open Market Committee Meeting

Win McNamee

With the U.S. strong economy, the Federal Reserve feels it can afford to be careful about its next step in adjusting interest rates, Chair Jerome Powell said on a “60 Minutes” episode aired on Sunday.

“The labor market is strong — 3.7% unemployment — with the economy strong like that, we feel like we can approach the question of when to begin to reduce interest rates carefully,” he said.

If the Fed cut rates too soon, inflation would settle above the Fed’s 2% goal, Powell said. If it moves too late, that could lead to a recession.

“Inflation has come down sharply in the past six months,” he said, adding that the central bankers want to continue to see more evidence that inflation is moving down before they move to loosen policy. That echoes comments he made at his press conference on Wednesday, when the Fed kept its policy rate at 5.25%-5.50%.

“We’re making good progress,” Powell said. “The job is not done, and we’re very much committed to making sure that we fully restore price stability for the benefit of the public.”

It would have been better if the Fed had tightened policy sooner when inflation surged in 2021, Powell said.

He was clear to point out that the easing of inflation doesn’t mean overall price level will come down. “I can’t overstate how important it is to restore price stability by which, I mean, inflation is low and predictable and people don’t have to think about it in their daily lives”.

Powell doesn’t expect that the slump in commercial real estate will lead to a banking crisis. some smaller banks may collapse or have to merge with other banks, he said. He does not foresee the CRE market triggering a 2008-like financial crisis.

While Powell has said he expects the Fed to cut rates later this year, a presidential election year, politics don’t enter into the Fed’s policy decision. Rather, the central bank is focused on economic data, he said.

With reporting by Joshua Fineman

Roy Walsh

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