Federal Reserve Chairman Jerome Powell said Sunday that the strength of the economy allows the Fed to be “cautious” in deciding when to cut interest rates.
“With the strength of the economy… we feel like we can handle the question of when we start cutting interest rates carefully,” Powell said in an interview broadcast on CBS News' “60 Minutes.”
The Fed chief stressed that the central bank is “actively considering” the appropriate time to move forward with interest rate cuts and will not wait until inflation returns to the 2% target.
“My colleagues and I are trying to choose the right point at which we begin to step back from our restrictive policy stance,” Powell said. “That time is coming.”
The Fed is trying to balance the risks of cutting too early, which could risk progress on inflation, and cutting too late, which could lead to a recession.
“The wise thing to do is to give it some time and make sure that the data continues to confirm that inflation is heading down to 2% in a sustainable way,” Powell said.
Last week, the Fed's policy statement said the central bank wants to be more confident that inflation is moving toward its 2% target.
Powell later told reporters that the committee was unlikely to reach that level of confidence by the time of the March meeting, seven weeks away.
The Fed Chairman repeated these comments in the interview.
He said a rate cut in March “is not the most likely or fundamental case.”
Powell noted that only “two” of the Fed's 19 senior officials do not want to cut interest rates at all this year. This means there is overwhelming support for cuts.
“So, certainly we will do that,” Powell said. “We're just trying to pick the right time, given the overall context.”
In December, the average Fed officials expected to cut interest rates three times this year. Powell told “60 Minutes” that he doesn't think those expectations have changed.
But Powell was interviewed before the release of strong jobs data for January, which showed that 353,000 new jobs were created, much higher than expected.
Following Friday's strong jobs report, traders in derivatives markets see a more than 70% chance that the first rate cut will take place in early May. They expect interest rates to be cut by a quarter point this year.
The yield on the 10-year Treasury note (BX:TMUBMUSD10Y) rose in trading Sunday night.
Powell faced quick questions from 60 Minutes correspondent Scott Pelley. Here are some of the key points he made.
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“The economy is in good shape and there is every reason to believe it can improve,” Powell said.
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Asked whether the Fed had “implemented” a soft landing, Powell said, “I'm not ready to say that yet. We have work to do on that.”
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“Geopolitical risks” pose the biggest threat to the global economy today.
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In hindsight, the Fed should have raised interest rates sooner to combat inflation. “I'm glad to say so.”
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The United States is on an “unsustainable fiscal path,” which is now a “pressing problem” that needs attention sooner rather than later.
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The decline in the value of commercial real estate appears to be a manageable problem for the balance sheets of large banks. Small banks may face challenges and there may be mergers or bank closures.
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Powell said the probability of a recession “is not that high right now.”
