Recently, Federal Reserve Chair Jerome Powell expressed himself regarding the Federal Reserve’s decision to cut its benchmark interest rate by 25 basis points and this was significant because of the feedback from the representatives regarding the economy and the financial markets This has been an issue that concerns them ever since there were possibilities of threats including slow growing economies, inflated worldwide currencies and the unstable economy across the globe. Such comments made by Powell ensure that the reason behind such changes is foremost explained during the time of the shift and that changes made are in compliance with the economic climate.
He added that Global disinflationary pressures have succumbed them into making this decision so it becomes critical to prevent themselves from succumbing under psychological pressure which represents an economic burden. The lowering of this benchmark indicates that investments and consumer expenditures have recently been facing a considerable drop and in addition to this it also strengthens the perception that economic expansion is on the verge of a slowdown according to the statements made by The Federal Reserve.
During his conference, Powell outlines and clarifies his stance suggesting that the Federal Reserve’s obligations and powers will remain intact and outline three salient points that ensure policy will barely shift any time soon.
- Decision Making Using Data Ideology
In reaffirming the Federal Reserve’s policies, Powell showed support for a data-centered thinking. He emphasized that the changes in rates in the future will depend on the inflow of economic information, especially the ones that deal with inflation, the behaviour of the labor market and the economy in general.
“We are working hard x to watch over inflation and when it is required to change our policy to achieve maximization on price and also maximization on employment, we would,” Powell said.
- The Fight Against Inflation Is Not Over Yet
The Federal Reserve’s aims are to cut interest rates so that the rate of economic expansion does not slow down. However, inflation has been and remains a major factor, as Powell has stated. With inflation now running higher than the central bank’s target of 2%, Powell has pointed out that inflation, while having slowed somewhat recently, is still too high. He further reminded that the Fed does not expect a substantial withdrawal of stimulus measures in the near future and is always ready to keep inflationary expectations standing still.
“In this case, we have to put our inflation fight on hold,” Powell said stressing that these steps should not be interpreted as abandoning inflation struggles, rather the needed navigation is being accomplished so as to assist the economy more while minimizing the pressure on prices.
- Risk Control
Powell appreciated the challenge of dealing with high inflation and slow growth at the same time.
The Fed is operating on thin ice especially with their delicate task of preventing a recession while inflation is on the rise. Powell referred to the reduction of rate ‘mid cycle adjustment’ instead of easing cycle which may be a reduction in growth.
Explanations for the interest rate reduction What’s the logic behind returning the interest rate down from 25 basis points? Such action goes hand in hand with more insight into economic conditions. A number of factors affected the decision to relocate:
Worsening Economy: The latter quarter has seen a deterioration on GDP growth with the manufacturing and the housing market showing signs of being engulfed in distress.
Job Keeping: Despite the labor market performing strongly, the rate at which jobs are created has reduced in comparison to above the year mark and this is a concern as it could strain the US economy.
International Instability: Economic developmental slowdown particularly in China and Eurozone coupled with political crisis have increased the risks of recession in the US economy and that appears to be a concern rather comparable to that existed before.
Borrowing conditions: Revised credit variants have raised borrowing costs for businesses and individuals in order to lessen the strain placed on them.
Market Commentaries
Notably, markets appeared to react positively to comments made by the Fed’s Powell as well any announcements made as Dow Jones appeared to rise on the day of the announcement.
Market players interpreted this act as a sign whereby the Federal Reserve is still active in the face of economic problems and will alter its position as the policy evolves. However, bond markets have shown somewhat differing signals. Though rates on short-term Treasuries fell after the rate cut, longer-term yields were infamously flat indicating an entrenched skepticism about the future trajectory of the Federal Reserve.
Next up was the Link to market given the rise in long term rates which they termed the Next up was the Link to market given the rise in long term rates which they termed as Bilateral trade and uncertainties over the pace of rate cuts by the fed. The reason for allowing the markets to continue rising is quite straightforward- the transition was anticipated but the market downdraft on expectations was only seen on large cap.
The market remains tight especially for Treasuries meaning that there is still pressure to lower rates further. With respect to multiple metrics hanging completely on Powell’s words earlier this month, inflation indeed has moderated and so has economic activity. Global Economic Growth: Economic growth has slowed in major markets around the world as new geopolitical risks continue to add volatility.
Since the Federal Reserve was established, its role was to ensure economic aggressiveness and allow the US to dominate the international economy. During the International Markets Watch event at the Forum, the United States was geopolitically isolated in all major markets. The US was at the center, but all other markets and operations were detached, especially due to the emergency response to the war in Ukraine.
Powell stressed that the policy of the bank is aimed at avoiding excessive responses to temporary fluctuations in the economy, which illustrates his reasoning quite well.
Conclusion
The increase in the interest rate ban by 25 basis points on the 25th of August 2021 also seems to agree with the statements made by Jerome Powell. It is all the more true now, as the central bank is interested in increasing the money supply in the economy but at the same time, and even more importantly, it wants to keep inflation in check. In the months to come, moving forward, the market, businesses and the general public can look out for the Federal Reserve’s steps and since it will have a bearing on the American economy.
If you are interested for more: Jerome Powell Discusses Policy Outlook Following 25 Basis Point Interest Rate Cut Ajith Kumar and Trisha Krishnan exhibit style while filming Vidaamuyarchi in Bangkok in anticipation of its Pongal 2025 premiere
