In a recent speech, Fed chair Jerome Powell said the US central bank “can afford to be a little more cautious” going forward as it looks to lower interest rates, given the underlying strength of the US economy.
One big challenge Powell will face during the post-decision press conference on Wednesday is how to defend the Fed’s expected vote to cut rates, given that the US economy and the labor market are both in relatively good health, while inflation has ticked higher.
“We expect Powell will indicate that the Committee believed it was appropriate to continue the re-calibration of its monetary policy stance with another modest reduction,” economists at Deutsche Bank wrote in a recent investor note.
“The Chair is likely to emphasize that the current policy stance leaves the Committee well placed to respond to risks in both directions,” they added.
Another big task facing the Fed chair is how to deal with the prospect of some dramatic economic changes once Donald Trump takes office on January 20th.
The Fed has a dual mandate from Congress to act independently to tackle inflation and unemployment. But it still has to deal with the implications of government policies on the broader economy.
“I think it is possible — conceptually possible — to have a baseline that’s agnostic as to Trump’s policies,” said Sheets from Citigroup. “And I think that that is the way that Powell is going to try to sell it.”
© 2024 AFP
