March rate cut unlikely as Powell need more confidence

Federal Reserve Chair Jerome Powell, in an exclusive interview aired on "60 Minutes" last Sunday, pledged a cautious approach to interest rate cuts throughout the year, signaling a pace slower than market expectations. Powell expressed confidence in the robust state of the economy, reaffirming the central bank's commitment to making decisions independently of political influences, particularly in the midst of a presidential election year.

During the wide-ranging interview with Scott Pelley, Powell emphasized the need for careful consideration before implementing interest rate reductions. Despite the strong economy, Powell stated, "We want to see more evidence that inflation is moving sustainably down to 2%," highlighting the importance of confidence-building measures before taking such significant steps.

Powell dismissed speculations of an imminent rate cut in March, aligning with the Federal Open Market Committee's (FOMC) post-meeting decision to maintain the benchmark borrowing rate in a range between 5.25% and 5.5%. The committee's statement underscored the commitment to cut rates only when confident about inflation moving towards the 2% target.

Market expectations have been varied, with some aggressive bets suggesting five quarter-percentage point reductions this year. However, Powell backed the FOMC's earlier estimates, pointing to just three moves in alignment with the December "dot plot" grid of individual members' forecasts.

The Federal Reserve Chair, maintaining a positive outlook on the economy, noted the moderation in inflation and the strength of the job market, with nonfarm payrolls surging by 353,000 in January. Powell highlighted geopolitical events as the primary risk factor for the economy, emphasizing the need for vigilance in the face of potential disruptions.

Reflecting on his previous warning during the early days of the rate-hike cycle, Powell acknowledged that the anticipated economic pain had not materialized. Contrary to concerns voiced during the Fed's retreat in Jackson Hole in August 2022, the economy continued to grow strongly, and job creation remained high, marking a positive trajectory.

Addressing potential political influences, Powell reiterated the Fed's steadfast commitment to independence. "We do not consider politics in our decisions. We never do. And we never will," he asserted, emphasizing the central bank's dedication to making decisions based on economic fundamentals rather than external pressures.

In conclusion, Powell's interview underlined the Federal Reserve's cautious stance on interest rate cuts, grounded in a positive economic outlook and a commitment to independent decision-making in the face of potential external pressures.