Why Powell Comments Hit Stocks Today

Fed Chair Powell: Economic Strength Lets Fed Take Cautious Approach on Rate Cuts

Federal Reserve Chair Jerome Powell said Thursday that the strong U.S. economy allows the central bank to proceed cautiously in any potential interest rate cuts. Speaking to business leaders in Dallas, Powell noted, “The economy is not signaling any urgency to lower rates.”

This economic resilience, Powell said, gives the Fed room to make careful, data-driven decisions on interest rate policy. After his remarks, traders in the federal-funds futures market scaled back their expectations for a December rate cut, dropping the odds of a quarter-point cut from 72.2% to 58.9%. The probability of a January cut is also low, at 23%.

U.S. stocks saw losses accelerate following Powell’s comments, with the Dow, S&P 500, and Nasdaq slipping further from their record highs earlier in the week. Krishna Guha, vice chairman of Evercore ISI, described Powell’s tone as “cautious and slightly hawkish,” adding that the Fed is not committed to a December cut and will rely on incoming economic data to shape its next moves.

Despite recent cuts that brought the Fed’s benchmark rate to a range of 4.5% to 4.75%, Powell clarified that while the central bank remains open to further easing, the path forward will not be pre-determined. The economic outlook remains uncertain, he said, and for that reason, the Fed is hesitant to give strong forward guidance.

Powell reiterated the Fed’s commitment to sustaining economic growth and supporting the job market to stave off a potential recession. Carl Weinberg, chief economist at High Frequency Economics, said Powell’s gradual approach to rate cuts aims to strike a balance between these goals. The Fed ultimately aims to reach a “neutral” rate—neither boosting nor restricting demand—although there is some debate among Fed officials on where that rate should be, with a median projection currently around 2.9%.

Powell also noted that inflation appears to be on track to reach the Fed’s 2% target, though he acknowledged the process may have “bumpy” periods. Additionally, he highlighted that the labor market has largely returned to levels consistent with the Fed’s goal of maximum employment. Though some analysts question whether the current rate remains restrictive given economic strength, Powell believes it is slightly dampening growth—a view that will continue to guide the Fed’s careful approach.