Federal Reserve Board Chairman Jerome Powell. File
| Photo Credit: AP

Federal Reserve Chair Jerome Powell signalled Monday that more interest rate cuts are in the pipeline, though their size and speed will depend on the evolution of the economy.

Wall Street investors and economists are weighing whether the Fed will follow its larger-than-usual half-point cut made earlier this month with another hefty reduction at either of its upcoming meetings in November or December. At their meeting Sept 18, Fed officials penciled in two more quarter-point rate cuts at those final 2024 meetings.

In remarks before the National Association for Business Economics in Nashville, Tennessee, Powell said the U.S. economy and hiring are largely healthy and emphasized that the Fed is “recalibrating” its key interest rate, which is now at about 4.8%.

He also said the rate is headed “to a more neutral stance,” a level that doesn’t stimulate or hold back the economy. Fed officials have pegged the so-called “neutral rate” at about 3%, significantly below its current level.

Mr. Powell emphasised that the Fed’s current goal is to support a largely healthy economy and job market, rather than rescue a struggling economy or prevent a recession.

“Overall, the economy is in solid shape,” Mr. Powell said in written remarks. “We intend to use our tools to keep it there.” Inflation, according to the Fed’s preferred measure, fell to just 2.2% in August, the government reported Friday. Core inflation, which excludes the volatile food and energy categories and typically provides a better read on underlying price trends, ticked up slightly to 2.7%.

The unemployment rate, meanwhile, ticked down last month to 4.2%, from 4.3%, but is still nearly a full percentage point higher than the half-century low of 3.4% it reached last year. Hiring has slowed to an average of just 116,000 jobs a month in the past three month, about half its pace a year ago.

Mr. Powell said the job market was solid but “cooling”, and added that the Fed’s goal is to keep unemployment from rising much higher.

Over time, the Fed’s rate reductions should reduce borrowing costs for consumers and businesses, including lower rates for mortgages, auto loans, and credit cards.

“Our decision…reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate economic growth and inflation moving sustainably down to 2%,” Mr. Powell said.

Since the Fed’s rate cut, many policymakers have given speeches and interviews, with some clearly supporting further rapid cuts and others taking a more cautious approach.

Austan Goolsbee, president of the Fed’s Chicago branch, said that the Fed would likely implement “many more rate cuts over the next year”.

Yet Tom Barkin, president of the Richmond Fed, said in an interview with The Associated Press last week, said that he supported reducing the central bank’s key rate “somewhat” but wasn’t prepared to yet cut it all the way to a more neutral setting.

A big reason the Fed is reducing its rate is because hiring has slowed and unemployment has picked up, which threatens to slow the broader economy. The Fed is required by law to seek both stable prices and maximum employment, and Powell and other policymakers have underscored that they are shifting to a dual focus on jobs and inflation, after centring almost exclusively on fighting price increases for nearly three years.

People walk past the Bombay Stock Exchange (BSE) building, in Mumbai.
| Photo Credit: PTI

Equity benchmark indices Sensex and Nifty began the trade on a positive note on Friday (August 23, 2024) but later pared gains to quote lower amid a muted trend in global markets and selling in IT stocks.

Market analysts said investors are awaiting cues from the U.S. Federal Reserve Chair Jerome Powell’s comments at Jackson Hole Symposium.

The 30-share BSE Sensex opened 37.32 points or 0.05% higher at 81,090.51 points. The NSE Nifty gained 18.25 points to 24,829.75.

Later, both the benchmark indices pared their early gains and were trading in the negative territory. The BSE benchmark quoted 117.82 points or 0.15% lower at 80,935.37 and the Nifty traded at 24,776.95, down by 34.55 points.

From the Sensex pack, Infosys, Titan, Tata Steel, UltraTech Cement, ITC, Tata Consultancy Services, Tech Mahindra and Asian Paints were the laggards.

On the contrary, Tata Motors, Reliance Industries, Sun Pharmaceuticals, Mahindra & Mahindra, Bajaj Finserv and ICICI Bank were among the gainers.

“Globally the market’s focus on Friday will be on U.S. Federal Reserve Chair Jerome Powell’s comments at Jackson Hole on the economy and the possible rate cut trend. Powell is likely to sound dovish indicating a rate cut in September,” V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

In Asian markets, Tokyo, Shanghai were trading higher, while Hong Kong and Seoul were quoting in the red territory on Friday.

The U.S. markets were closed lower on Thursday (August 22, 2024).

Foreign Institutional Investors (FIIs) bought equities worth ₹1,371.79 crore on Thursday, according to exchange data.

Meanwhile, Domestic Institutional Investors (DIIs) again bought equities worth ₹2,971.80 crore on Thursday.

Global oil benchmark Brent crude rose 0.06% to $77.27 a barrel.

On Thursday, the 30-share BSE index rose 147.89 points to close at 81,053.19, registering gains for the third day in a row.

Extending gains to a sixth session in a row, the NSE Nifty went up by 41.30 points to end at a two-week high of 24,811.50.