Rate cut is a ‘recalibration’ of US Fed policy – Powell

US Federal Reserve Chair Jerome Powell described the latest rate cut as a “recalibration” of the central bank’s policy in his opening statement on Wednesday. Powell emphasised that this adjustment is not a commitment to similar actions at future meetings.

“This recalibration of our policy stance will help maintain the strength of the economy and the labour market, and will continue to enable further progress on inflation as we begin the process of moving toward a more neutral stance. We are not on any preset course. We will continue to make our decisions meeting by meeting,” Powell stated.

Powell highlighted the Fed’s dual objectives: stabilising inflation and preventing an increase in unemployment. “We’re trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation,” he explained during the post-meeting press conference.

Powell also urged investors to view the Fed’s 50 basis-point rate cut as a demonstration of its “strong commitment” to these goals.

Not going back to world of ultra-low interest rates

Regarding the future of interest rates, Powell expressed skepticism about a return to the era of ultra-low rates. “Intuitively, most — many, many people anyway — would say we are probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates,” he remarked. “My own sense is that we are not going back to that,” he added, noting that the neutral rate is likely significantly higher now, though its exact level remains uncertain.

Attribution: US Federal Open Market Committee (FOMC) post-meeting press conference