Fed Chair Powell’s Speech and Future Rate Cuts

Following Federal Reserve Chair Jerome Powell’s latest speech, Goldman Sachs strategists reiterated their expectation for two more 25 basis point (bp) rate cuts in 2024 from the central bank.

During an event hosted by the National Association for Business Economists, Fed Chair Jerome Powell emphasized that the committee doesn’t feel “like it’s in a hurry to cut rates quickly” and that the process of lowering the fed funds rate will “play out over time.”

Powell referenced the September Summary of Economic Projections, noting that “the baseline” would involve “two more cuts, it wouldn’t mean more 50s.” However, he clarified that the pace of cuts will depend on the data, asserting that the FOMC “will do what it takes in terms of the speed with which we move.”

The central bank chairman described the overall economy as “strong,” citing the recent annual update to the national accounts. He mentioned that the large upward revision to gross domestic income (GDI) “removes a downside risk to the economy,” and upward revisions to the saving rate also alleviated concerns about a possible downside risk regarding consumer spending sustainability.

Powell acknowledged that while activity data have been less predictive of downturns compared to labor market data, he stressed that “there is nothing I can point to in the economy that suggests that a downturn is more likely than it is at any time.”

Concerning the labor market, Powell’s tone was more cautious, explaining that the increase in the unemployment rate projection in the September SEP is linked to the idea that “the level of job creation is maybe not quite at the level it needs to be to hold unemployment constant given assumptions about supply.”

He further pointed out that “the level of payroll job creation has come down pretty significantly,” drawing attention to the downward revisions in payroll growth from the QCEW data.

Powell reiterated the Fed’s view that it does not “believe that we need to see further cooling in labor market conditions to achieve 2 percent inflation.”

Goldman Sachs strategists labeled Powell’s remarks as consistent with their forecast for 25bp cuts in November and December. They stated, “We continue to see the choice between 25bp and 50bp in November as a close call.”

The Fed commenced its policy shift last month with a 50bp rate cut, marking the first reduction since 2020.