Powell: The Federal Reserve can dial back restrictive policies faster or slower; inflation is indeed higher than expected

On November 7th, Thursday, the Federal Reserve lowered interest rates by 25 basis points as expected, reducing the target range for the federal funds rate to 4.5%-4.75%. However, the decision statement removed the wording about "gaining confidence in combating inflation," which may suggest an openness to pausing rate cuts in December.

At 2:30 PM Eastern Time, Federal Reserve Chairman Jerome Powell attended a press conference, stating that "the overall economic performance is strong." Recent indicators suggest that the economy is expanding robustly, consumer spending growth remains resilient, and supply conditions have improved, which has supported the economy.

He noted that labor market conditions remain solid. If it weren't for the hurricane and supply issues, hiring activity "would be somewhat higher." The labor market is not a significant source of inflationary pressure.

He reiterated that U.S. inflation is now closer to 2%, while core inflation remains somewhat elevated. Inflation expectations remain anchored. Rate cuts will help maintain the strength of the economy. The Federal Reserve will continue to make decisions on a meeting-by-meeting basis. He emphasized:

"The Federal Reserve can dial back restrictive policies faster or slower. The Fed's policy tools are ready to address the risks we face. The Fed is on a more neutral interest rate track."

He stated that it is still too early to judge the trend of U.S. Treasury yields, suggesting that bond movements are not driven by inflation exceeding expectations. Economic activity data has consistently been stronger than expected, and previous inflation data was not bad, but indeed higher than anticipated.

When asked how Trump's future policies might affect the Federal Reserve, Powell stated that election issues will not impact FOMC policy in the short term, and it is unclear how fiscal policy will change and when, "We will not speculate, conjecture, or assume fiscal policy."

The market is focused on whether he will provide more meaningful clues about the future path of interest rates, comment on the impact of the U.S. election on the economic outlook, and the effects of Trump's potential tax cuts, tariffs, and spending plans on the Fed's subsequent policies and regulatory framework.

Earlier that day, media reports indicated that Trump might allow Powell to continue leading the Federal Reserve until his term ends in May 2026, and Powell is expected to be asked about related issues. During Trump's presidency, he frequently criticized the Federal Reserve and Powell, claiming they hindered U.S. economic prosperity.

Following Trump's victory, the market has lowered its expectations for a rate cut in January next year, with the more mainstream view being a pause in rate cuts at that time. The probability of this has risen from 44% a week ago to 54%, while the probability of a 25 basis point rate cut in December has slightly decreased from 77% to 67%.

Some analysts pointed out that Trump's victory has sparked speculation that the Federal Reserve may cut rates at a slower and more gradual pace, as policies to restrict illegal immigration and implement new tariffs could push inflation higher. At the same time, this has also prompted discussions about what the "neutral interest rate" is in the eyes of the Federal Reserve, which neither restricts nor stimulates economic growth.

(Continuously updated)