"The economy is much better than expected"... The Fed hints at rate cuts [Fed Watch]

Fed Chair Jerome Powell hinted at a rate cut. The current U.S. economic situation is much better than it appeared in September when the base rate was first cut.

On the 4th (local time), Powell attended a New York Times DealBook event and said, "We are prepared to support the labor market if it continues to weaken," but also noted, "The U.S. economy is stronger than expected in September." He added, "Good news gives us room to be more cautious in finding a rate level that does not overheat or cool the economy too much."

The Fed has room to maintain a cautious stance as there is no need to rush into a rate cut. The Fed has cut rates at the last two meetings. In September, the base rate was lowered by 0.5% points due to the possibility of a weakening labor market. At last month's meeting, it was further lowered by 0.25% points, and the current base rate is 4.5~4.75%. The market expects the Fed to lower the rate by another 0.25% points at the FOMC meeting on the 17th-18th of this month and then delay further rate cuts.

Powell did not directly comment on the December meeting. However, he emphasized that "there is a path to lower rates again to a more neutral level," which can maintain a state where the economy is neither overheated nor cooled.

After the U.S. presidential election, Powell and Fed officials' remarks are linked to Donald Trump's interest rate policy. The Fed is interpreted as judging that it is not the time to widen the rate cut due to concerns that Trump's interest rate policy will overheat the economy. When asked about tax policy on this day, Powell said, "The Fed cannot respond first to tax policy." It was interpreted as a reiteration of the existing position that if there is a reason for rising prices, they will respond at that time.

Reporter Kim Ri-an knra@hankyung.com