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

By Greg Robb

A good deal of progress has been made in avoiding a painful rise in unemployment, Fed chair 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 at 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 50-basis-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%."

That is the definition of a "soft landing" for the economy.

Based on the central bank's "dot-plot" projections, Powell said the baseline is two more quarter-point rate cuts at the November and December meetings.

"If the economy performs as expected, that would mean two more cuts this year, a total of 50 more [basis points]," he said.

But the decision will depend on the data, he added.

The goal of the cuts is to get the policy rate down toward a more "neutral" stance, which the Fed says is around 3%. The Fed's target rate is now in the range of 4.75% to 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. They point to, among other things, the five straight monthly gains by the S&P 500 SPX and Dow Jones Industrial Average DJIA.

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

Stronger-than-expected employment data would likely mean cuts of 25 basis points, but weaker-than-expected numbers could push those cuts to 50 basis points.

What is the level that would trigger a 50-basis-point move? Economists say it is difficult to know for sure.

Seth Carpenter, global chief economist at Morgan Stanley, estimates that any result under 100,000 in monthly job gains would be a clear signal 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 since the September meeting, Fed officials have sounded "more open" to another large cut.

-Greg Robb

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09-30-24 1534ET

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