Federal Reserve Chairman Jerome Powell on Sunday said that the strength of the economy allows the Fed to be “careful” in deciding when to cut interest rates.
“With the economy strong…we feel like we can approach the question of when to begin to reduce interest rates carefully,” Powell said, in an interview aired on CBS News’ “60 Minutes.”
The Fed chairman stressed the central bank is “actively considering” when to go forward cutting rates and wouldn’t wait until inflation got back down to the 2% target.
“My colleagues and I are trying to pick the right point at which to begin to dial back our restrictive policy stance,” Powell said. “That time is coming.”
The Fed is trying to balance the risks of cutting too soon, which might risk the progress made on inflation and cutting too late, which could lead to a recession.
“The prudent thing to do is to just give it some time and see that the data continue to confirm that inflation is moving down to 2% in a sustainable way,” Powell said.
Last week, the Fed policy statement said the central bank wanted to be more confident that inflation is moving down toward its 2% target.
Powell later told reporters that it was unlikely that the committee would reach that level of confidence by the time of the March meeting, which is in seven weeks.
The Fed chair repeated those comments in the interview.
A March rate cut “is not the most likely or base case,” he said.
Powell noted that only “a couple” of the 19 top Fed officials don’t want to cut interest rates at all this year. That means there is overwhelming support for cuts.
“And so, it is certainly to base case that we will do that,” Powell said. “We’re just trying to pick the right time, given the overall context.”
In December, the median forecast of Fed officials was for three rate cuts this year. Powell told “60 Minutes” that he didn’t think these forecasts had changed.
But Powell was interviewed before the strong January jobs data, which showed 353,000 new jobs were created, much higher than had been expected.
After the strong job report Friday, traders in derivate markets see over a 70% chance that the first rate cut is in early May. They foresee five quarter-point rate cuts this year.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y moved higher in trading on Sunday night.
Powell faced rapid-fire questions from “60 Minutes” correspondent Scott Pelley. Here are some key points he made.
- “The economy is in a good place and there’s every reason to think it can get better,” Powell said.
- Asked if the Fed has “pulled off” a soft landing, Powell said “I’m not prepared to say that yet. We have work left to do on this.”
- “Geopolitical risks” are the greatest threat to the world economy today.
- In hindsight, the Fed should have raised interest rates sooner to combat inflation. “I’m happy to say that.”
- The U.S. is on an “unsustainable fiscal path” and it is now an “urgent problem” that needs attention sooner rather than later.
- The decline in the value of commercial real estate “appears to be a manageable problem” on large banks’ balance sheets. Smaller banks may be challenged and there may be mergers, or bank closures.
- The possibility of a recession “isn’t all that elevated right now,” Powell said.