Briefing at a Glance

  • Federal Reserve Chair Jerome Powell said Wednesday that unexpected strength in the healthy job market and economy gives policymakers time to carefully consider the pace of future cuts to the benchmark interest rate.
  • "The economy is strong, and stronger than we expected in September," Powell said, when the Fed began lowering borrowing costs from a two-decade high. "Labor market conditions are better, and downside risks seem smaller," he said during an online event hosted by The New York Times.
  • "The good news is that we can be more cautious as we search for the neutral rate," Powell said, referring to the federal funds rate level that neither restrains nor stimulates economic growth.

In-Depth Analysis

Powell's remarks align with the stance of other Fed officials in recent days, who all support a cautious approach to future cuts to the federal funds rate. Since September, the Federal Open Market Committee has cut rates by a total of 0.75 percentage points, lowering the rate range to 4.5% to 4.75%.

"Recent data has raised the possibility that inflation progress may stall at a level clearly above 2%," Fed Governor Christopher Waller said Monday.

"This risk raises concerns that the FOMC should consider holding the policy rate steady at upcoming meetings to gather more information on the future path of inflation and the economy," Waller said in remarks. He said he leans toward supporting a 25-basis-point rate cut at the FOMC meeting on December 17-18.

The inflation gauge closely tracked by the Fed, which excludes volatile food and energy prices, rose to a 2.8% annual rate in October, up from 2.7% in September, remaining persistently above the Fed's 2% target. The core Personal Consumption Expenditures price index rose 0.3% month over month in October, according to data released by the Bureau of Economic Analysis on November 27.

Another measure of price pressures—the Consumer Price Index—rose 2.6% on an annual basis in October, up from 2.4% the previous month.

Housing costs rose 0.4% in October, contributing more than half of the overall price increase, the Bureau of Labor Statistics said on November 13. Core CPI, excluding volatile food and energy prices, rose 0.3% month over month last month, matching the pace of August and September.

"There are indeed upside risks to price stability," Atlanta Fed President Raphael Bostic said Monday. "In fact, our underlying inflation dashboard shows that many inflation measures remain well above target."

"There is uncertainty on all fronts, with risks to both a healthy labor market and price stability," he said.

"That said, putting all the data together, I don't think the recent fluctuations indicate that progress toward price stability has completely stalled," Bostic said in comments posted on the regional Fed's website. "The path to 2% inflation, while bumpy, looks sustainable."

Despite policymakers' growing calls for a prudent easing approach, interest rate futures traders raised the probability of a 25-basis-point rate cut at the Fed's next meeting to 76% from 67% on November 27, according to the CME FedWatch tool.

"Based on the economic data available today and forecasts showing inflation will continue along a downward path toward 2% over the medium term, I currently lean toward supporting a rate cut at the December meeting," Waller said.

"But that decision will depend on whether the data we receive before then comes in with upside surprises that change my forecast for the inflation path," he said.

Bostic said price pressures, while volatile, could decline over time, citing five reasons. He predicted that housing costs—a persistent driver of inflation—could ease over time and that the economy would gradually cool.

Economic growth and consumer spending have not slowed as expected this year.

Gross domestic product grew at an annualized rate of 2.8% in the third quarter, following growth of 1.4% in the first quarter and 3% in the second quarter, according to the Bureau of Economic Analysis.

The Atlanta Fed on Monday raised its estimate for current-quarter GDP growth to a 3.2% annualized rate from 2.7%.

Despite strong growth, price pressures could fade because consumer inflation expectations remain stable and the household savings rate has declined, reducing momentum for economic growth, Bostic said. Additionally, businesses' operating costs have remained stable and pricing power has weakened.

Still, Waller compared fighting inflation to grappling with a cunning opponent in the bloody sport of mixed martial arts.

"I feel like an MMA fighter who keeps locking inflation in a chokehold, waiting for it to tap out, but it always slips from my grasp at the last moment," Waller said. "But I assure you, the submission is inevitable—inflation can't escape the octagon."