Powell erases December rate cut by saying there is no rush to cut

The president of the US Federal Reserve, Jerome Powell, attended an event at the Dallas Regional Chamber, and gave a speech in which he highlighted the strength that the US economy is showing, a vigor that will allow the Fed to ” make the necessary decisions very calmly.” For Powell, “the economy is not giving any signal that we have to hurry to lower interest rates”, a message that has resonated with investors. The bond has increased its yield to maturity by 5 basis points after the president’s speech, a movement that has been enough for the market to stop discounting the rate cut that, until now, was expected for the December meeting.

With Powell’s latest message, investors have taken note and have stopped pricing in a final rate cut this year. According to the swaps market, it is now more likely that there will be a pause in December, before continuing with the process of cutting rates that the Fed has started in the last quarter of 2024. Powell acknowledges being aware that “Cutting interest rates too quickly could damage the progress we have made on inflation”but, on the other hand, warns that “doing it too slowly can harm economic activity and employment.”

It is, on this last front, that of employment, that the Fed is now focused, as it has publicly recognized in its latest monetary policy meetings. “The labor market is in solid shape, and has cooled from overheated conditions a few years ago. It is now at more normalized levels, which are consistent with our employment mandate,” explains Powell.

Thus, the Fed is now sticking to the message that it has been repeating for months: they will make their decisions with flexibility, meeting by meeting, based on the macroeconomic data that become known, and without a specific direction. And this, If the December meeting were to take place right now, it seems that it would lead to a pause in the rate cut process. At least that’s how investors see it.

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