Powell: The Federal Reserve can cut interest rates faster or slower, Trump cannot fire me, and it may be appropriate to slow down interest rate cuts in the future

On Thursday, November 7th, 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, praising the overall strong performance of the U.S. economy, acknowledging the continued cooling of the labor market and "one inflation data point being higher than expected," and clearly stating that the Federal Reserve will continue to lower interest rates.

The market focused on whether he would reveal more meaningful clues about the future path of interest rates, whether he would comment on the impact of the U.S. elections on the economic outlook, and how Trump's potential tax cuts, tariffs, and spending plans might affect the Federal Reserve's subsequent policies and regulatory framework.

Opening Remarks: The labor market is not a significant source of inflationary pressure; if inflation cools and the economy remains strong, rate cuts can be slower

In his prepared opening remarks, Powell stated that improvements in supply conditions supported the strong performance of the U.S. economy over the past year, and the Federal Reserve has made significant progress in achieving its dual mandate of maximum employment and stable prices. The economy and labor market remain robust.

He pointed out that the pace of job creation has indeed slowed compared to earlier this year, with an average of 104,000 new jobs added per month over the past three months, but this may have been temporarily affected by strikes and hurricanes in October. The unemployment rate is significantly higher than a year ago but has declined over the past three months:

"Overall, a range of broad indicators suggests that the tightness in the labor market has eased compared to before the pandemic in 2019. The labor market is not a significant source of inflationary pressure."

In evaluating inflation, he stated, "Inflation rates have fallen significantly over the past two years," with the September PCE price index rising 2.1% year-on-year, closer to the central bank's long-term target of 2%, but core PCE rose 2.7% year-on-year, which is "still slightly high." However, long-term inflation expectations seem to remain stable.

He emphasized that the Federal Reserve does not have a preset path when "gradually shifting to a more neutral stance," and will make "dynamic decisions" at each meeting based on data, the evolving outlook, and risk balance, as cutting rates too quickly could hinder inflation cooling, while cutting rates too slowly could excessively weaken economic activity and employment:

"If the economy remains strong and inflation does not consistently move toward 2%, we can reduce policy restrictions more slowly (i.e., cut rates more slowly). If the labor market unexpectedly weakens or inflation declines faster than expected, we can take action more quickly."

Powell: Trump cannot fire or demote me; the election will not affect monetary policy in the short term, and slowing rate cuts is not ruled out

During the Q&A session, the media first focused on whether Powell could "smoothly retire" during Trump's second presidential term.

Asked too many times, Powell repeatedly stated that he did not want to answer too many political questions, but firmly stated that even if Trump asked him to resign as Chairman of the Federal Reserve, he would not comply, and the law does not allow the U.S. president to fire or demote senior officials of the Federal Reserve. Earlier reports indicated that Trump might allow Powell to continue leading the Federal Reserve until the end of his term in May 2026. During Trump's presidency, he frequently criticized the Federal Reserve and Powell, claiming that their pace of monetary policy easing was not fast enough and was hindering the prosperity of the U.S. economy. In October, Trump also stated that the U.S. president should have the authority to participate in interest rate decisions and to comment on whether rates should be raised or lowered.

Powell also clearly mentioned that the upcoming U.S. elections will not affect monetary policy in the short term, and the Federal Reserve will not "speculate, conjecture, or assume about fiscal policy and its potential impact on the economy."

He stated that after today's rate cut, "the policy remains restrictive," and combined with his mention that "the fight against inflation is not over," as well as the Federal Reserve being on a path closer to neutral interest rates, it can be inferred that he is hinting that "the Federal Reserve will continue to cut rates."

However, the Federal Reserve's policy statement opened up the possibility of pausing rate cuts soon, and Powell also stated that there is no need to further cool inflation to maintain price stability, “As we approach neutral rates, it may be appropriate to slow the pace of rate cuts.”

He reiterated, "The Federal Reserve is not in a hurry to achieve neutral rates," and warned that any changes in government while the Federal Reserve seeks to lower rates could impact monetary policy:

"In principle, any policy of the U.S. government or policies enacted by Congress could have economic impacts over time, and therefore, along with countless other factors, these economic impact forecasts will be incorporated into the Federal Reserve's economic models and considered."

After Trump's victory, the market has lowered its expectations for a rate cut in January next year, with the mainstream view now suggesting 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 might 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 led to discussions about what the "neutral rate" is in the eyes of the Federal Reserve, which neither restricts nor stimulates economic growth.

What else was said: More data will come before the December meeting, a soft landing is still possible, and U.S. deficits and fiscal policy are economic headwinds

During the Q&A session, Powell also mentioned that the labor market has not yet fully stabilized, and the U.S. labor market continues to cool, but the pace is "very slow." The business community believes that the economic situation in 2025 will be better than this year, but geopolitical risks are high. Wage growth remains slightly above levels consistent with the 2% inflation target: “We are still moving towards a more neutral stance, and the key is the right pace.”

When discussing inflation, he acknowledged "one inflation data point slightly above expectations," but it does not cause him concern about the economy:

"Overall, we feel optimistic about economic activity. At the same time, we received an inflation report that, while not terrible, was indeed slightly higher than expected However, by December, we will have more data, including an employment report, two inflation reports, and a wealth of other data, and we will make decisions at the December meeting."

He also reiterated that the Federal Reserve still believes in achieving a "soft landing," "believing that we can tackle high inflation while maintaining strong employment," and that the long-term inflation expectations of Americans remain well anchored.

When discussing the surge of over 70 basis points in the 10-year U.S. Treasury yield since the Federal Reserve's significant rate cut in September, Powell believes that the rise in Treasury yields is primarily driven by economic growth rather than monetary policy:

"It is still too early to judge the trend of U.S. Treasury yields; it seems that the bond market is not driven by inflation being higher than expected, as economic activity data has consistently been stronger than expected."

At the same time, the rise in U.S. Treasury yields is inevitably related to expectations of large-scale borrowing by the Trump administration in the future, leading to an increasingly large fiscal deficit. Powell bluntly stated that the rising U.S. deficit and overall fiscal policy remain a drag on the economy, and the scale of federal debt is unsustainable:

"Our debt level is not inappropriate relative to the economy, but this path is unsustainable. With a huge deficit, we are currently at full employment, and this situation is expected to continue, so addressing this issue (the fiscal deficit) is very important, as it ultimately poses a threat to the economy."

Powell's prepared remarks for the press conference are as follows:

"Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. The economy is strong overall and has made significant progress toward our goals over the past two years. The labor market has cooled from its formerly overheated state and remains solid. Inflation has eased substantially from a peak of 7 percent to 2.1 percent as of September." We are committed to maintaining our economy’s strength by supporting maximum employment and returning inflation to our 2 percent goal.

Today, the Federal Open Market Committee decided to take further measures to reduce the degree of policy restraint by lowering the policy interest rate by 25 basis points. We continue to believe that with appropriate adjustments to our policy stance, the strong momentum in the economy and labor market can be sustained, and inflation will continue to decline to 2%. We also decided to continue reducing our securities holdings. After briefly reviewing economic developments, I will have more to say about monetary policy.

Recent indicators suggest that economic activity has continued to expand at a solid pace. GDP rose at an annual rate of 2.8 percent in the third quarter, about the same pace as in the second quarter The growth of consumer spending has remained resilient, and investment in equipment and intangibles has strengthened. In contrast, activity in the housing sector has been weak. Overall, improving supply conditions have supported the strong performance of the U.S. economy over the past year.

Labor market conditions remain solid. Payroll job gains have slowed from earlier in the year, averaging 104 thousand per month over the past three months. This figure would have been somewhat higher were it not for the effects of labor strikes and hurricanes on employment in October. Regarding the hurricanes, let me extend our sympathies to all the families, businesses, and communities who have been harmed by these devastating storms. The unemployment rate is notably higher than it was a year ago, but has edged down over the past three months and remains low at 4.1 percent in October Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed. Overall, a broad set of indicators suggests that conditions in the labor market are now less tight than just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures.

Inflation has eased significantly over the past two years. Total PCE prices rose 2.1 percent over the 12 months ending in September; excluding the volatile food and energy categories, core PCE prices rose 2.7 percent. Overall, inflation has moved much closer to our 2 percent longer-run goal, but core inflation remains somewhat elevated. Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.

Our monetary policy actions have a dual mandate to promote maximum employment and price stability for the American people. We believe the risks to achieving our employment and inflation goals are roughly balanced, and we are attentive to the risks facing each of our dual mandates

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we are attentive to the risks to both sides of our mandate.

At today’s meeting the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point, to 4-1/2 to 4-3/4 percent. This further recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation as we move toward a more neutral stance over time.

We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, evolving outlooks, and risk balances. We have no preset course and will continue to make decisions meeting by meeting In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. We are not on any preset course. We will continue to make our decisions meeting by meeting.

As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals. If the economy remains strong and inflation is not sustainably moving toward 2 percent, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can move more quickly. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.

The Federal Reserve has been given two monetary policy goals—maximum employment and price stability. We remain committed to supporting maximum employment, bringing inflation down to the 2 percent target on a sustained basis, and maintaining stable long-term inflation expectations. Our success in achieving these goals is critical for all Americans We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission. The Federal Reserve will do everything we can to achieve our maximum employment and price stability goals. Thank you. I look forward to our discussion