Ben Curtis|AP-File

Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the Federal Reserve, Sept. 18, 2024, Washington, D.C.

Federal Reserve Chairman Jerome Powell said on Monday that “our economy is strong overall” but that further cuts in interest rates are likely as the central bank attempts a “recalibration” of monetary policy.

In a speech to the National Association for Business Economics in Nashville, Tennessee, Powell said the tight money policy of the past two years – including the highest interest rates in two decades – “helped restore the balance between overall supply and demand in the economy.”

“That patient approach has paid dividends: Inflation is now much closer to our 2% objective,” he said. “Today, we see the risks to achieving our employment and inflation goals as roughly in balance.”

 

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Powell characterized the decision to lower interest rates by a half percentage point, as compared to forecasts for a smaller, quarter point cut, as a “time for a recalibration of our policy stance to reflect progress toward our goals as well as the changed balance of risks.”

He refused to say anything about what the Fed’s monetary policy committee would do at its next meeting in November, noting there are two employment reports from the Labor Department and more readings on inflation before it gathers one day after the November election.

“If the economy performs as expected, that would mean two more cuts this year,” he said, a statement that is in line with Fed projections for another 50 basis points in cuts by year end. “This is not a committee that feels like it’s in a hurry to cut rates quickly.”

That remark may well explain why the Dow Jones Industrial Average fell by more than 200 points as he spoke, since markets have tended to be a little more aggressive on the number and size of rate cuts to come this year. However, it is also possible that some profit taking is at work on Wall Street with the end of the month and the quarter arriving Monday.

On Friday, the government will release the monthly employment numbers for September, with forecasts calling for around 146,000 jobs added during the month. That would be a slight increase from the 142,000 gain in August. A key measure of job availability to open positions has cooled from about two to one during the early months after the COVID-19 pandemic to a little above one to one currently.

“We have nonfarm payrolls and unemployment this week,” said Dave Sekera, chief U.S. market strategist at Morningstar. “Those will be very closely watched and, in my view, potentially market moving. The risk here is likely to the downside – with the Fed embarking on a monetary easing policy of a 50-basis point cut instead of the typical 25-basis point cut, the question really is, is the Fed seeing more softness in jobs and unemployment than what the market is expecting?”

Earlier Monday, Fed Governor Michelle Bowman told a meeting of the Georgia Bankers Association why she chose to be the lone dissenter when the Fed’s monetary policy committee voted to lower interest rates by 50 basis points two weeks ago.

“First, I was concerned that reducing the target range for the federal funds rate by one-half percentage point could be interpreted as a signal that the Committee sees some fragility or greater downside risks to the economy,” Bowman said.

“In the current economic environment, with no clear signs of material weakening or fragility, in my view, beginning the rate-cutting cycle with a one-fourth percentage point move would have better reinforced the strength in economic conditions, while also confidently recognizing progress toward our goals.”

Bowman also said she was concerned that the larger cut might raise expectations in the markets about the size of future moves on interest rates.

In terms of the overall economy, Powell said that “if the economy evolves broadly as expected, policy will move over time toward a more neutral stance. But we are not on any preset course.”