Powell rules out US recession, says 50 bp cut won't install 'new rhythm' – Money Times

Despite the beginning of the monetary easing cycle of USA (USA) with a robust cut, the president of Federal Reserve, Jerome Powellsaid that it is not a “new rhythm”.

“The conditions allowed us to make a bigger cut in interest rates today, but I don’t want anyone to look at this as a new pace,” he said in a press conference on Wednesday (18), after the decision was announced.

The Federal Open Market Committee (Fomcin the English acronym) cut the fees reference rate by 0.50 percentage points (pp). The rate, which had been in the range of 5.25% to 5.50% since July 2023, was reduced to 4.75% to 5% per year.

This is the first cut in more than four years, a period in which the US central bank imposed restrictive conditions to contain the inflation.

Powell made a point of emphasizing that the cut is the result of a “recalibration of monetary policy,” given progress with inflation and the shift in the balance of risks. “The decision to cut interest rates by 50 bps reflects confidence that, with an appropriate recalibration of the monetary stance, labor market strength can be maintained and inflation will continue to fall,” he said.

“The labor market has cooled from its previous overheated state. Inflation has eased substantially from a peak of 7% to an estimated 2.2% in August.”

The Fed chairman also ruled out a possible recession in the US economy. “I don’t see anything in the economy that suggests the likelihood of a recession is high,” he said.

“The U.S. economy is in good shape, growing at a solid pace, inflation is falling and the labor market is strong. We want to keep it that way,” he argued.

Projections do not indicate flight plan

Along with its rate decision statement, the Fed released its revised economic projections. Policymakers expect to need to cut interest rates to a range of 4.25% to 4.50% by the end of the year.

“If the economy continues as expected, we project the appropriate level of interest rates will be 4.4% at the end of this year and 3.4% at the end of 2025,” Powell said at the press conference.

However, he stressed that the projections do not indicate a flight plan or FOMC decision. “We do not have any predefined course. We will continue to make our decisions meeting by meeting.”

The Fed chairman also stressed that nothing in the estimates suggests a “rush.” “I have mentioned a path toward neutral rates and we will go as fast or as slow as we think is appropriate,” he said.