Powell Challenges Rate Cut Rumors: Hikes Still Possible?

On Friday, Federal Reserve Chairman Jerome Powell said that talk of the central bank cutting rates was “premature,” and that more rate hikes may be necessary this year. Powell’s remarks came during a speech to the Economic Club of Washington D.C., in which he discussed the state of the economy. Powell’s comments reflect the Fed’s cautious stance on monetary policy, particularly as the central bank anticipates an increase in inflation towards the end of the year. He said that while the Fed held the benchmark overnight rate steady earlier this month, there may be a need for further adjustments in the future. The Fed chief noted that economic growth was largely helped by strong consumer spending, but the recent volatility of the stock market could pose a risk. He also pointed out the elevated levels of public and private debt, as well as the growing cost of health care and other services. Powell further outlined how the current economic scenario could push the Fed to act. He said that any move to cut rates or other adjustments to monetary policy depend on the actual economic circumstances. For now, the Fed chairman said “it is premature to talk about cutting rates this year.” At the end of his speech, Powell concluded that the Fed will remain vigilant and continue to monitor economic data to spot any shifts in conditions. He noted the potential for higher inflation, given the tight labor market and rising wages, but said the central bank would respond as needed. In sum, Federal Reserve Chairman Powell refrained from calling for any specific action on the part of the Fed, but rather pointed out the potential need for rate hikes or other adjustments in the future. He ended with a stern but measured statement that puts the Fed on alert, but does not commit to any immediate policy changes.