Federal Reserve News Agency: The next question is, where is the end point of the rate cut, and how fast is the pace?
According to Powell's remarks, the neutral interest rate may be raised, and there will be no further rate cuts at a pace of 50 basis points in the future. Economic data remains the main consideration. Nick Timiraos stated that cutting rates too quickly may delay inflation from reaching the 2% target, while cutting rates too slowly may lead to a rise in the unemployment rate. It is expected that the next meeting will continue to face similar uncertainties as this one
After the Federal Reserve's significant 50 basis point rate cut on Wednesday, Nick Timiraos, a Wall Street Journal reporter known as the "New Fed News Agency," wrote that with the Fed officially starting a loose cycle, the next question will be: where is the end point of rate cuts, and how fast will it be?
Timiraos quoted Powell's remarks at the press conference to answer this question.
The "end point of rate cuts" actually refers to the neutral rate, which is the theoretical rate guiding monetary policy. Powell stated in his remarks that there is still a wide range of uncertainty in assessing the neutral rate, but "we will not return to the era of ultra-low rates as before":
"We may not return to the era where tens of trillions of dollars of sovereign bonds trade at negative rates, or the era where long-term bonds trade at negative rates. The future neutral rate may be much higher than at that time."
Regarding the speed of rate cuts, Powell stated that not to consider the 50 basis point cut as a new rhythm in the future, the Fed will not continue to cut rates at this speed, and economic data will still be the basis for decisions:
"Data will drive monetary policy choices, rate cuts will accelerate, decelerate, or pause as needed."
In Timiraos' view, in terms of interest rate prospects, the Fed may face dual risks from employment and inflation:
One is that if there is a delay in rate cuts, it will lead to an increase in the unemployment rate, prompting officials to be eager for larger rate cuts.
The other is that if action on rate cuts is too fast, the possibility of inflation "sticking at the 2% target level" will increase.
As mentioned by Wall Street News previously, this decision no longer reiterates the "risks to achieving the employment and inflation goals continue to tilt toward better balance," but instead states "risks to achieving the employment and inflation goals are broadly balanced," and adds the statement about "commitment to supporting full employment, emphasizing avoiding risks in employment."
Timiraos' article also points out that from Powell's remarks, he is also trying to achieve a balance between "concerns about the economy" and "complacency about employment risks" in his expressions:
"Some believe that taking measures to support the labor market often happens when it is still strong, rather than when layoffs begin."
Within the year, the Fed will also have two FOMC meetings in November and December. The article notes that the ongoing mixed economic signals continue to bring similar uncertainties to the next meeting.