Powell says U.S. economy is in 'solid shape' and the Fed intends to keep it that way

By Greg Robb

Good deal of progress made in avoiding painful rise in unemployment, Fed chairman says

The U.S. economy is in solid shape and the Federal Reserve intends to keep it that way, Federal Reserve Chair Jerome Powell said Monday.

The Fed's goal all along has been to bring down inflation without a "painful rise in unemployment," Powell said in remarks to the annual meeting of the National Association for Business Economics in Nashville.

"While the task is not complete, we have made a good deal of progress toward that outcome," Powell said.

The Fed chair said the surprise half-point cut in the central bank's policy rate earlier this month was a sign of confidence that, if the Fed adjusts interest rates at an appropriate pace, "the strength in the labor market can be maintained in the context of moderate economic growth and inflation moving sustainably down to 2%."

Powell said the Fed would continue to cut rates if the economy evolves as expected. He sidestepped questions of whether the Fed would be cutting by 25 basis points or 50 basis points at its meetings in November and December, saying the size and pace of further rate cuts would be made on a "meeting-by-meeting" basis.

The goal of the cuts is to get the policy rate down toward a more "neutral" stance, which the Fed roughly says is around 3%. The Fed's target rate is now in the range of 4.75%-5%.

At the moment, the Fed believes this level of its policy rate is still dampening demand, although some economists think there is less of a brake on growth than the Fed seems to think, and point to, among other things, the five-straight monthly gains in the S&P 500 SPX and Dow Jones Industrial Average DJIA.

According to economists, the next two jobs report for September and October will play important roles in the size of further cuts.

Stronger-than-expected jobs data would likely mean cuts of 25 basis points but weaker-than-expected numbers will push them to 50 basis points.

What is the level that triggers a 50 basis point move? Economists said it is very difficult to know for sure.

Seth Carpenter, global chief economist at Morgan Stanley, estimates that said any result under 100,000 in monthly job gains would be a clear candidate for a larger cut.

The consensus forecast of Wall Street economists is for the economy to add 144,000 jobs in September, well above that possible trigger level.

On the other hand, economists at Deutsche Bank said that Fed officials since the September meeting have sounded "more open" to another large cut.

-Greg Robb

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09-30-24 1355ET

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