Is Powell Under Pressure To Set US Interest Rate Cut Plan?

Fed Chair Jerome Powell faces a challenge in keeping the US central bank’s policy plans flexible, as investors believe the cooling economy means tightening is over.

The FOMC prepares for its final two-day meeting of 2023, and Powell is expected to use his press conference on Wednesday to emphasise that it is too early to declare a monetary policy pivot is underway.

The Fed is expected to hold interest rates for the third time in a row, with the federal funds rate remaining at a 22-year high of 5.25-5.5 percent. However, as officials extend the rate hike pause that began in July, they are not ready to declare that interest rates have reached a level that is sufficiently restrictive to bring inflation down to their 2% target.

As a result, financial conditions have loosened in recent weeks, raising concerns that the Fed’s efforts to dampen demand may be jeopardised. Powell will have the opportunity to reiterate that it is “premature” to declare a policy pivot is underway, even as inflation remains low.

Economists are watching to see if policymakers have penciled in more cuts for next year, as maintaining the same magnitude of cuts next year would help clarify that the Fed is not planning to reverse course abruptly even as the pace of consumer price growth slows.