Powell emphasizes that inflation is the number one enemy! The Federal Reserve's pace of interest rate cuts may slow down

According to the Zhitong Finance APP, Federal Reserve officials, while cutting interest rates for the third consecutive time, have sent a strong signal indicating that their concerns about inflation are rising, marking a conclusion for the policy direction in 2024. Federal Reserve Chairman Jerome Powell candidly pointed out that the central bank's forecast for year-end inflation has not met expectations.

Officials now expect that achieving the 2% inflation target will take longer, a goal that has not been met for nearly four years. Therefore, they have lowered their expectations for rate cuts next year and emphasized that any future adjustments will depend on whether inflation can cool further.

This increased focus on inflation marks a strategic shift for the Federal Reserve, which viewed a weak labor market as a greater risk in September. However, recent data and policy suggestions from incoming President Donald Trump have reignited concerns about inflation exceeding the central bank's target.

Powell emphasized at Wednesday's press conference, "When we consider further rate cuts, we will focus on progress in inflation. The 12-month inflation rate has been fluctuating." Currently, the median expectation among policymakers is that the rate cut next year will be only half a percentage point, which is half of what was expected in September.

The market reacted quickly to the Federal Reserve's new policy expectations, with declines in the U.S. Treasury market and stock market, while the dollar rose to its highest level in over two years.

In recent months, Powell has pushed the committee to implement a half-percentage-point rate cut, followed by cuts of 25 basis points in November and at Wednesday's meeting, totaling a one-percentage-point cut over three meetings, the largest cut during non-crisis periods since 2001.

Powell stated that the latest move brings the federal funds rate down to a range of 4.25%-4.5%, which is a more realistic option. Cleveland Fed President Beth Hammack voted against this move, preferring to keep rates stable.

Inflation Risks

Conrad Dequadros, a senior economic advisor at Brean Capital LLC, pointed out, "If inflation does not improve further, rate cuts will become more difficult."

Among the 19 officials, 15 believe the risk of inflation exceeding expectations is higher, a significant shift compared to the three officials who held the same view in September. Fourteen officials indicated that they believe there is greater uncertainty regarding inflation forecasts.

Many economists have stated that Trump's tax cuts, mass deportations, and new tariff plans pose risks of exacerbating inflation. Powell noted that some have indeed begun to incorporate these proposed policies into their forecasts for the December meeting. He likened it to saying, "When the road is uncertain, you should slow down; it's common sense." Officials currently expect the inflation rate to reach 2.5% by the end of next year, up from the median of 2.1% in September, and they anticipate that price growth will stabilize by the end of this year. The latest forecasts indicate that policymakers currently expect to achieve the 2% target by 2027.

Patricia Zobel, the head of macroeconomic research at Guggenheim Investments and a former senior official at the New York Federal Reserve Bank, stated, "The committee is certainly concerned about the challenges inflation poses to the public. They are committed to reducing the inflation rate."

Although inflation has cooled down and has not caused significant damage to the economy, Powell acknowledged that the surge in price levels continues to trouble the wallets of Americans. He admitted, "People are still feeling the pinch of high prices, and the best thing we can do for them, which is also our goal, is to bring the inflation rate back to target levels."