Fed Chairman Powell reiterated that the Fed has the ability to be more cautious in cutting interest rates in a positive economic situation, it is too early to assess the impact of President Trump on interest rates, and ruled out the possibility of a so-called "shadow Fed Chairman" appearing after Trump took office.

On Wednesday, December 4th, EST, at the DealBook/Summit conference hosted by The New York Times, Powell said that the strength of the U.S. economy means that the Fed can show some restraint in cutting rates. He said:

"The U.S. economy is in very good condition, there is no reason not to continue this momentum. The good news is, we can be more cautious (in cutting rates)."

This is Powell's last public speech before the quiet period of the December Fed monetary policy meeting. Investors are closely watching this speech in hopes of finding clues as to whether the Fed will continue to cut interest rates this month. However, Powell did not directly comment on whether the Fed meeting on December 17th to 18th will decide on a rate cut.

Powell believes that the downside risks in the labor market are decreasing. With strong economic growth and slightly sticky inflation on the rise, the Fed may be more cautious. Over time, the policy rate of the Fed will be more neutral. The Fed can remain patient and cautiously move towards a neutral rate. He said:

"Economic growth is definitely stronger than we imagined, with inflation rising slightly. The good news is, we can be a little more cautious when trying to find the neutral (interest rate level)."

Powell assesses that the Fed has not yet achieved its goal of lowering inflation, but progress is being made in lowering inflation. Prices in the United States are rising, which is causing discontent among the public. Looking at the number of people employed, the job market looks good, but the lower-income segment is under pressure. Powell believes that the current economic situation is better than when the Fed began cutting rates in September. This situation means that the Fed can cut rates more slowly. He said:

"We want to send a strong signal: if the labor market continues to be weak, we will provide support. The economy is performing well, even stronger than we expected in September."

Powell's cautious stance on interest rate cuts continues the statement he made half a month ago when he publicly spoke for the first time after President Trump was elected. On November 14, Powell said, "The economy has not sent any signals that require us to cut rates urgently," because the economy is performing well, so the Fed has the ability to make decisions cautiously.

Not worried about the risk of losing the independence of the Federal Reserve, confident in the good relationship with the Trump administration.

In the interview on Wednesday, Powell reiterated that the Federal Reserve's independence as a central bank is supported by Congress. When the moderator asked about the idea of a "shadow Federal Reserve Chairman" from the Trump administration, he directly denied it, saying the new administration would not seek to realize this idea, "I think this is simply impossible."

Powell stated that independence enables the Federal Reserve to make the best decisions. The independence of the Federal Reserve has broad support from the U.S. Congress. He is not concerned about the risk of the Federal Reserve losing its independence. To a certain extent, the independence of the Federal Reserve means that the Fed is financially self-sufficient.
Powell stated that he is confident in cooperating well with the future Trump administration, and expects the Federal Reserve to maintain the same relationship with financial regulatory agencies and the Treasury Department as in the past, "the most important thing is the relationship with the Treasury Department." He also said that if Trump's nominee for Treasury Secretary, Scott Bessent, is confirmed by the Senate, he is "confident... I will establish the same relationship with him as with other Treasury Secretaries."

Powell reiterates that the U.S. debt situation is unsustainable. However, he pointed out that the Federal Reserve has never discussed the federal government's debt level when formulating monetary policy, and the Fed's financial functions are far removed from the Treasury Department.

Powell's term as Fed Chairman will end in 2026. The idea of a "shadow Fed Chairman" actually came from Scott Bessent, the fiscal candidate nominated by Trump. Wall Street News mentioned that in October of this year, Bessent stated in an interview that Trump could nominate a "shadow" Chairman, making Powell a "lame duck" during his term. He said: "Once there is a 'shadow' Fed Chairman and forward guidance, no one really cares about Powell's statements anymore."

At that time, some analysts believed that Bernett's idea was to plan the future direction of the Federal Reserve during Powell's term. This means that if Trump returns to the White House, he may seize Powell's authority and sideline him.

It is too early to determine the impact of Trump's tariffs and other policies on the economic and interest rate outlook.

Trump stated at the end of last month that on his first day in office, he would impose tariffs on Canada, Mexico, and three other major trading partners of the USA. Economists generally expect tariffs to raise prices for consumer electronics, agricultural products, and certain alcoholic beverages. Once tariffs are implemented, it is likely to accelerate inflation, which will force the Federal Reserve to respond by either stopping rate cuts or possibly raising rates again.

On Wednesday, Powell's statement on Trump's tariffs continued his stance from half a month ago. At that time, he said it is too early to conclude the impact of the election results on the economic outlook.

This time, Powell still believes it is too early to determine how the policy changes by Trump and the Republican-led Congress next year will affect the economic and interest rate outlook.

Powell stated that the Federal Reserve is currently facing too many unknowns to seriously consider any consequences that may arise from high tariffs, such as which specific commodities will be subject to tariffs and the duration of any new trade policies. It is unknown how large Trump's tariffs will be, when they will be implemented, and how long they will last.

Powell said that Trump's tariff idea has not yet materialized, so the Federal Reserve cannot formulate corresponding policies. The Fed is modeling, monitoring, and evaluating the tariff concept. The Federal Reserve does not have its own views on immigration issues and tariff proposals.

Editor/Lambor