Powell's Cautious Stance: Inflation and Rate Cuts

Federal Reserve Chair Jerome Powell's remarks indicate a careful approach to rate cuts amid ongoing economic growth and inflation above targets. While markets expect fewer rate cuts, Powell emphasizes balancing inflation and labor conditions. His comments led to market reactions in stocks, bonds, and forex.

Federal Reserve Chair Jerome Powell said Thursday that with ongoing economic growth and inflation above 2%, the U.S. central bank can afford to take a cautious approach to lowering interest rates. This statement aligns with the financial market's expectation for fewer rate cuts next year than previously forecast.

Powell reiterated that he and other policymakers believe inflation is on a sustainable path to reach the 2% target, allowing for a more neutral monetary policy setting over time. His comments caused the S&P 500 to extend its losses by 0.6%, while the US Treasury 10-year yield slightly decreased and the dollar index saw a 0.4% rise.

Market analysts had varied reactions to the speech. Adam Hetts of Janus Henderson Investors praised the cautious tone, while Paul Nolte of Murphy & Sylvest noted the impact on the S&P 500. Quincy Krosby of LPL Financial highlighted the Fed's caution about declaring victory against inflation, reflecting mixed interpretations of the CPI report.

(With inputs from agencies.)