Federal Reserve Chair Jerome Powell said the recent performance of the US economy has been "remarkably good," giving central bankers room to lower interest rates at a careful pace.

"The economy is not sending any signals that we need to be in a hurry to lower rates," Powell said Thursday in prepared remarks in Dallas. "The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully."

US central bankers began lowering borrowing costs in September with an aggressive half-percentage-point cut, and then lowered the policy rate again by a quarter point last week. They've signaled a willingness to cut rates further so long as inflation continues to slow. Powell's comments appear in line with some of his other colleagues who are advocating a go-slow approach to future rate reductions.

Data out earlier this week showed a measure of underlying US inflation remained firm in October. The so-called core consumer price index — which excludes food and energy costs — increased 0.3% for a third month. 

"Inflation is running much closer to our 2% longer-run goal, but it is not there yet," Powell said. "We are committed to finishing the job. With labor-market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2% objective, albeit on a sometimes-bumpy path."

Powell made no comments on the possibility of a cut at the December meeting. Futures markets have priced in about a 70% probability of a quarter-point reduction.

Monetary policy could face crosswinds next year if President-elect Donald Trump fulfills his campaign promises to cut taxes, restrain immigration and deploy tariffs. Policy uncertainty may also be contributing to the Fed's more inertial attitude toward lowering rates right now. 

Trump has also criticized the Fed and Powell. At his Nov. 7 press conference, Powell said he wouldn't leave the Fed if asked to resign. He also added that any attempt to demote him or any other Fed governor in a leadership position was "not permitted under the law."

The US economy continues to expand at a robust pace, averaging about 3% growth over the past two years. The labor market, meanwhile, has cooled, but remains resilient. Powell said the labor market is in "solid condition," and said by many metrics it's back to "more normal" levels consistent with the maximum employment mandate.

"Improving supply conditions have supported this strong performance of the economy," Powell said. "The labor force has expanded rapidly, and productivity has grown faster over the past five years than its pace in the two decades before the pandemic, increasing the productive capacity of the economy and allowing rapid economic growth without overheating."

Higher productivity, which allows workers to produce more output per hour, helps to keep a lid on inflation and is key to long-term economic growth.

Some policymakers, including the Minneapolis Fed's Neel Kashkari, have said higher productivity may ultimately lead to fewer rate reductions. 

"Ultimately, the path of the policy rate will depend on how the incoming data and the economic outlook evolve," Powell said.

Source : Bloomberg