(Bloomberg) -- Federal Reserve Chair Jerome Powell downplayed the prospects of tension with the incoming Trump administration and said he expects officials can move cautiously as they continue lowering interest rates.
“We can afford to be a little more cautious as we try to find neutral,” Powell said in reference to the level for rates that neither spurs nor restrains the economy.
The Fed’s preferred measure of underlying inflation accelerated in October on an annual basis, offering support for a careful approach to further reductions. Meanwhile, Powell noted downside risks to the jobs market appear to have receded.
Policymakers will next meet Dec. 17-18 in Washington. The Fed chair didn’t say whether he favored lowering rates at that meeting. After the remarks, however, multiple analysts said they anticipate the Fed will cut rates by a quarter point this month, and then hold steady at their January gathering.
Asked about the president-elect and Treasury nominee Scott Bessent, Powell expressed confidence he can work well with the incoming administration.
“I fully expect that we’ll have the same general kinds of relationships, institutional relationships, for example with the Council of Economic Advisers, but most importantly with the Treasury Department,” Powell said Wednesday at the New York Times DealBook Summit in New York.
On Bessent, Powell said he was “confident that I will have the same kind of relationship with him once he’s confirmed as I’ve had with other Treasury secretaries.”
Bessent has previously floated the idea of naming a “shadow Fed chair” well in advance of the end of Powell’s term in 2026, a move that would effectively undermine the Fed leader’s influence with financial markets.
Powell said he didn’t believe the incoming administration would pursue that idea: “I don’t think that’s on the table at all.”
Economic Outlook
He also said the economy is “in remarkably good shape,” adding growth has been stronger than previously believed.
“I feel very good about where the economy is and where monetary policy is,” he said.
Powell added that inflation is still not quite back to the central bank’s 2% target, but he saw no reason solid economic conditions couldn’t continue.
Derek Tang, an economist at LH Meyer/Monetary Policy Analytics, wrote in a note to clients that a December cut remains likely.
“Thereafter, we expect a quarterly pace of 25-basis-point cuts until the funds rate reaches neutral,” he said.
Priya Misra, a portfolio manager at JPMorgan Asset Management, said officials will still have to weigh new inflation and jobs data due between now and the December meeting, but that Powell “didn’t take a cut off the table.”
“He tried to retain a lot of optionality in terms of a December rate cut,” said Priya Misra. “He is setting the stage for a slowing in the pace of rate cuts next year.”
Several policymakers have said the Fed should continue lowering rates from current levels, which they view as having a restraining effect on the economy, given a cooldown in inflation. Still, officials have said the pace and timing of cuts will depend on how economic conditions and data evolve, with several advocating for a gradual approach.
A labor market report due Friday is expected to show hiring picked up and the unemployment rate held steady in November, according to a Bloomberg survey of economists.
--With assistance from Craig Torres.
(Updates with analysts’ reaction in fourth paragraph.)