Fed to proceed cautiously with interest rates as recent measures show satisfying results – Powell

US Federal Reserve Chairman Jerome Powell, in his speech last Friday, said that the risks of slowing the economy too much versus not raising interest rates enough to control inflation have become more balanced, indicating the Fed’s intention to proceed cautiously while expressing optimism about its progress so far.

He noted that a key measure of inflation averaged 2.5% over the six months ending in October, close to the Fed’s 2% target.
He acknowledged that US monetary policy is slowing the economy as intended, with the benchmark overnight interest rate considered to be well into restrictive territory.

Powell stated that the Federal Open Market Committee is moving forward carefully, acknowledging that the full effects of the 5.25% of rate hikes implemented by the Fed may not have been fully felt yet.

Powell mentioned that the FOMC is prepared to tighten policy further if deemed necessary based on future data, however, there is increased confidence that the current policy rate (5.25%-5.50%) may be sufficient to achieve the desired outcomes.

He pointed to the uncertainty in the economic outlook but also indicated that the broad outlines of the hoped-for soft landing were falling into place.
Fed Chief mentioned that while spending and output growth are expected to slow over the next year, the job market remains strong, and wage growth is gradually moving toward levels consistent with 2% price inflation.

In summary, Powell’s statements reflect the Fed’s cautious approach, with a focus on the balance of risks and the potential adequacy of the current policy rate.
The optimism about progress toward a soft landing is tempered by acknowledgment of economic uncertainties and persisting challenges in certain sectors, such as manufacturing.