(Reuters) -The U.S. economy seems poised for a continued slowdown in inflation that will allow the Federal Reserve to cut its benchmark interest rate and “over time” reach a level that is no longer holding back activity, Fed Chair Jerome Powell said on Monday in remarks that showed no obvious lean towards a faster or slower pace of rate reductions.
Powell said in remarks prepared for delivery at a National Association for Business Economics conference in Nashville, Tennessee that the Fed is not on any preset course. “The risks are two-sided, and we will continue to make our decisions meeting by meeting.”
He said he sees two more interest rate cuts, totaling 50 basis points, this year as a baseline “if the economy performs as expected,” though the Fed could cut faster if needed, or slower.
The Fed cut rates by half a percentage point at its Sept. 17-18 meeting, lowering the range of its policy rate from a 20-year high of 5.25%-5.50%, which it had maintained for 14 months, to the current 4.75%-5.00% range.
MARKET REACTION:
STOCKS: The extended a slight loss to -0.23%
BONDS: The yield on benchmark U.S. 10-year notes rose to 3.80%. The yield rose to 3.651%.
FOREX: The extended to a 0.39% gain
COMMENTS:
GREG FARANELLO, HEAD OF U.S. RATES STRATEGY, AMERIVET SECURITIES, NEW YORK
“Powell is trying to temper things a little bit. It’s probably the right thing to do. If you listened to Fed speak since their meting, they have definitely leaned more toward a gradual course lower. The economy has weakened a little bit here and there, but there are still pockets that have done well.”
“The Treasury market is backing off these levels a little bit. We’re kind of looking for a new catalyst. We had priced in a lot of fate cuts here. And we’re still looking at 75 basis points of cuts for 2024. We’re backing off a little bit from that. So a little bit of consolidation here makes sense.”
WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY
“It looks like Powell’s “over time” comments put a wet blanket on the market’s enthusiasm for the expected rapid fire rate cuts. There’s a bit of repricing going on based on those comments. There’s that usual disconnect between the bond markets and the equity market, where you see an initial move and then a bounce back.”
ROBERT PHIPPS, DIRECTOR, PER STIRLING CAPITAL MANAGEMENT AUSTIN, TEXAS
“During the speech Powell said this is not a committee that feels like it’s in a hurry to cut rates quickly. That sounded less dovish than the market had priced in. There were some expectations for a 50 basis point cut by the end of the year. That comment probably took it off the table.”
STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK, NEW YORK
“It’s his reiteration of 50 bps (in cuts) if it evolves the way they expect. The comments on housing inflation and the sluggishness of the move. The comment that the GDP revisions removed downside risks to the economy. In the revisions they revised up the savings rate. Prior to the revisions they were below 3% at some measly two and change level, now they’re almost 5%. So, he’s saying consumers can keep spending.… Overall there’s nothing suggesting a downturn is more likely. He took his hawkish pills.”
“Maybe the market is beginning to worry that they’re serious about doing 25s, because there was a sense that that was just for show that they were going to frontload, and here he’s talking about upside risks certainly in a way he didn’t talk at the FOMC.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“He basically has underscored that the Fed remains data dependent but nonetheless – the way I’m interpreting it – he’s looking toward an economy that remains solid and a labor market that remains solid and inflation coming down. The suggestion is that the Fed – even though there will be a host of new data before the next meeting – appears to be on tap for another rate cut in the November meeting.”