(Reuters) -The U.S. economy appears poised for a sustained slowdown in inflation, allowing the Federal Reserve to cut its benchmark interest rate and “over time” reach a level that no longer holds back activity, Fed Chairman Jerome Powell said on Monday . in comments that showed no clear trend towards a faster or slower pace of rate cuts.
Powell said in remarks prepared at a National Association for Business Economics conference in Nashville, Tennessee, that the Fed is not on a set course. “The risks are two-sided and we will continue to make our decisions one meeting at a time.”
He said he sees two more rate cuts this year, totaling 50 basis points, as a baseline “if the economy performs as expected,” although the Fed could cut faster or slower if necessary.
The Fed cut rates by half a percentage point at its September 17-18 meeting, lowering its policy rate range from the 20-year high of 5.25%-5.50% it had maintained for 14 months , to the current 4.75. %-5.00% range.
MARKET REACTION:
SHARES: The S&P 500 lost slightly to -0.23%
BONDS: The yield on US 10-year benchmark bonds rose to 3.80%. The yield on 2-year bonds rose to 3.651%.
FOREX: The dollar index rose to a gain of 0.39%
NOTES:
GREG FARANELLO, HEAD OF US RATING STRATEGY, AMERIVET SECURITIES, NEW YORK
“Powell is trying to tone things down a little bit. That’s probably the right thing to do. If you’ve listened to the Fed’s statements since their meeting, they’ve certainly leaned more toward a gradual path down. The economy is here and a little bit weakened there, but there are still pockets that have done well.”
‘The government bond market is slightly reducing these levels. We are actually looking for a new catalyst. We had priced in a lot of cuts here. And we’re still looking at 75 basis points of cuts by 2024. We’re backing away from that a little bit. So a bit of consolidation makes sense here.”
WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY
“It appears that Powell’s comments “over time” have put a damper on the market’s enthusiasm for the expected rapid fire rate cuts. There’s a bit of repricing going on based on those comments. There is that usual gap between the bond markets and the stock market, where you see an initial movement and then a recovery.”
ROBERT PHIPPS, DIRECTOR, PER STIRLING CAPITAL MANAGEMENT AUSTIN, TEXAS
“During the speech, Powell said this is not a committee that feels like it is in a rush to cut rates quickly. That sounded less forgiving than the market had priced in. There were some expectations for a 50 basis point cut by the end of the year. That comment probably took it off the table.”
STEVE ENGLANDER, HEAD, GLOBAL G10 FX RESEARCH AND NORTH AMERICA MACRO STRATEGY, STANDARD CHARTERED BANK, NEW YORK
“It’s its repeat of 50 basis points (in cuts) if it evolves as they expect. The comments about housing inflation and the slowness of the move. The comment that the GDP revisions removed downside risks to the economy. During the revisions, they adjusted the savings rate upwards. Before the revisions they were at a paltry level of two and change below 3%, now they are almost 5%. So he says consumers can keep spending. Overall, there is nothing to suggest that a recession is more likely. He took his aggressive pills.’
“Maybe the market is starting to worry that they’re serious about doing 25s because there was a feeling that that was just to show that they were going to front load, and here he’s talking about upside risks, especially on a way he didn’t. talk at the FOMC.”
QUINCY KROSBY, CHIEF GLOBAL STRATEGIST, LPL FINANCIAL, CHARLOTTE, NORTH CAROLINA
“He has basically underlined that the Fed remains dependent on numbers, but nevertheless – as I interpret it – he is looking at an economy that remains solid and a labor market that remains solid and inflation is coming down. The suggestion is that the Fed – even though there will be a slew of new data before the next meeting, it looks like another rate cut is in store at the November meeting.”
(Compiled by the Global Finance & Markets Breaking News team)
