The Federal Reserve (Fed) Chairman, Jerome Powell, announced on Friday that the central bank is in no rush to cut rates despite Wall Street’s anticipations for a rate cut in June. Powell stated the Fed is prepared to disregard these expectations if they feel the economy is not yet in a steady state.
The Chairman said, “We don’t need to be in a hurry to cut,” emphasizing that solid employment numbers have bought the central bank more time to delay until inflation approaches the 2% target. Powell’s comments were delivered at an event hosted by the San Francisco Fed.
Just hours before the announcement, the central bank’s favored inflation indicator, the Personal Consumption Expenditures price index, was released. The reading showed inflation increased last month to an annual rate of 2.5%, drifting further from the Fed’s 2% target. However, the increase was not a concern to Chairman Powell, who affirmed it was “pretty much in line with our expectations.”
The Fed Chair questioned the rush to cut rates, given that inflation has decelerated compared to a year ago when prices rose twice as fast as they currently are. He also mentioned the complexities of the federal funds rate. The federal funds rate is the interest rate at which banks and credit unions lend reserve balances to other banks overnight. These funds influence a broad range of market interest rates and play a key role in US monetary policy.
The Federal Open Market Committee (FOMC), a branch of the Federal Reserve, sets the target range for the federal funds rate considering its policy goals and the US’s economic conditions. The FOMC holds approximately eight meetings a year, during which they finalize the target rate that impacts financial activity, employment, and inflation in the country.
Looking at previous trends, the federal funds rate dipped to a record low of 0.00–0.25% between December 2008 and December 2015, as a response to the 2007–2008 financial crisis. In light of the 2021–2022 global inflation surge, the Fed has been aggressively increasing the Federal Funds Rate (FFR). During the latter half of 2022, the FOMC hiked the FFR by 0.75 percentage points on four different occasions. The rate currently sits at approximately 4.4%, with the Fed indicating it will not be lowered until 2024 at the earliest.
Information Box:
– The Federal Reserve is the central bank for the United States.
– The Federal Open Market Committee (FOMC) holds approximately eight meetings a year to determine the target range for the federal funds rate.
– The Personal Consumption Expenditures price index is the preferred inflation gauge of the Federal Reserve.
– The federal funds rate directly influences economic activity, employment levels, and inflation in the United States.
– The federal funds rate currently sits at approximately 4.4%.
Reference 1: CBS News – Conversation with Jerome Powell, 2022
Reference 2: Federal Reserve Bank of San Francisco – Event Details,
Reference 3: Federal Open Market Committee – Official Announcements and Publications,
Reference 4: Bureau of Economic Analysis – Personal consumption expenditures (PCE),
Reference 5: Investopedia – Federal Funds Rate: Definition, Impact, and How It Works,