Will Interest Rates Drop Further? Insights from Powell’s Upcoming Speech

Diccon Hyatt is a seasoned financial and economic journalist who has extensively covered the pandemic-era economy with clear explanations of complex financial issues, emphasizing their impact on personal finances and markets. His work includes contributions to U.S. 1, Community News Service, and the Middletown Transcript.

Key Highlights

• Jerome Powell is set to address the National Association for Business Economics, potentially providing guidance on the Federal Reserve’s interest rate plans.
• After maintaining high rates to combat inflation, the Fed is poised to reduce rates to stimulate the economy and curb unemployment.
• Investors are closely watching for the pace and size of upcoming rate cuts, with uncertainty ahead of the November Federal Open Market Committee meeting.

The Federal Reserve’s benchmark interest rate is expected to decline in the near future, but the extent and speed remain uncertain. Powell’s speech on Monday at the NABE annual meeting in Nashville will be pivotal, marking his first major address since the Fed’s significant rate cut in September—the first since 2020.

Fed officials, including Powell, have indicated plans to lower the federal funds rate, which will reduce borrowing costs for mortgages, credit cards, and other loans. However, the timing and scale of these cuts are yet to be clarified.

Market Expectations for Rate Cuts

Financial markets are divided on whether the Fed will implement a standard 25 basis point cut or a larger 50 basis point reduction at the November 6-7 meeting. As of late Friday, there is a 55% probability of a bigger cut, according to CME Group’s FedWatch tool, which analyzes fed funds futures trading.

Powell and other Fed policymakers emphasize that upcoming rate decisions will be data-driven, focusing on inflation trends and labor market conditions. The goal is to encourage borrowing and spending to boost economic growth and employment without reigniting inflation. Recent trends show inflation easing while unemployment rises, increasing pressure for faster rate reductions.

Powell’s Message and Fed Credibility

Powell’s speech may also serve to reinforce the Fed’s commitment to controlling inflation. He previously faced scrutiny for the sharp September rate cut despite inflation remaining above the 2% target and unemployment being relatively low. Some Fed members, like Governor Michelle Bowman, preferred a more cautious approach.

New economic data supports the view that the U.S. economy continues steady growth rather than slipping into recession or mass job losses. Revised GDP figures for Q2 showed a robust 3% growth rate, with Gross Domestic Income also rising at 3.4%, according to the Bureau of Economic Analysis.

Conrad DeQuadros, senior economic advisor at Brean Capital, noted, “With GDP and GDI aligning on strong economic growth over the past year, uncertainty about the economy’s status has lessened. However, markets remain focused on expected rate cuts, suggesting skepticism about the Fed’s data-dependent approach. Powell’s upcoming NABE speech will be crucial to address these concerns.”

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