Federal Reserve Chairman Jerome Powell indicated on Thursday that although further interest rate reductions are anticipated, the extent of these decreases may not be as significant in the coming months. Powell's comments suggested that additional rate cuts are probable due to the sustained economic trends and dynamics, including a decelerating job market and subdued inflation, exacerbated by interest rates that remain at levels considered restrictively high. Maintaining borrowing costs at these elevated levels could potentially lead to an increase in unemployment.

"We are progressively aligning our policy towards a more neutral stance," Powell stated in his prepared remarks for an event in Dallas. "The current economic indicators do not suggest an urgent need to reduce rates rapidly." Following Powell's speech, U.S. stocks experienced a broad decline.

As the Fed continues to consider its rate-cutting cycle, the potential policies of President-elect Donald Trump could introduce significant alterations to the U.S. economy, which would subsequently influence the Fed's rate decisions. Economists generally concur that it will take time for Trump's proposed policies to impact the broader economy, implying that the economy may not undergo dramatic changes in the immediate future.

Trump's economic agenda encompasses the extension of 2017 tax cuts, the introduction of various tax relief measures, the capping of credit card interest rates at approximately 10%, and the implementation of substantial across-the-board tariffs—proposals that are likely to be advanced by the incoming Republican-led Congress. Powell mentioned in a moderated discussion that Fed economists might start to evaluate Trump's plans and their potential economic implications as early as next month, noting that policymakers will incorporate these effects after thorough examination. However, he emphasized the uncertainty surrounding many aspects, such as the possibility of retaliatory tariffs from other nations.

"We will withhold judgment until we have a clear understanding of the situation," Powell said. "I am not inclined to speculate or guess." Powell's term as chairman is set to conclude in May 2026, with his tenure on the Fed's board of governors extending through January 2028. When inquired about his intentions to remain at the Fed beyond his chairmanship, he only confirmed his commitment to completing his term as chairman.

The October inflation data did not demonstrate progress from the previous month, nor did it indicate a genuine escalation in price pressures. It is premature for Fed officials to conclude that the October data signifies any new trend. The Consumer Price Index (CPI) increased by 2.6% in October compared to the same period last year, up from September's 2.4% annual rate, marking the first year-over-year acceleration since March.

The October CPI's momentum was primarily due to comparisons with data from the previous year, when inflation experienced a sharp decline, a phenomenon known as "base effects." The Producer Price Index for October, released on Thursday, also showed a significant increase. These figures provide a preview of what the Fed's preferred inflation gauge, the Personal Consumption Expenditures price index, might reveal for October when that report is released later this month.

Earlier in the year, it took three consecutive months of disappointing inflation reports for officials to acknowledge a "lack of further progress," which compelled them to maintain rates until September. For the time being, inflation is still expected to continue its steady downward trajectory, notwithstanding occasional fluctuations, according to economists and Powell. "Given the labor market conditions are roughly balanced and inflation expectations are well-anchored, I anticipate inflation to continue descending toward our 2 percent target, albeit on a sometimes-bumpy path," Powell stated. Inflation is no longer the central focus it once was. While additional high inflation reports could be considered in the Fed's decisions, officials are also closely monitoring the U.S. labor market. Slower hiring and a rise in unemployment were key factors that prompted the Fed to initiate rate cuts in September.

The implications of Trump's potential re-election for a second term are significant for the Fed, in addition to Powell himself. Economists have widely noted that Trump's agenda poses the risk of reigniting inflation, which could compel the Fed to not only halt rate cuts but perhaps begin increasing rates if price increases start to accelerate, although the ultimate effects of Trump's economic plans may not become apparent until later.

This would maintain borrowing costs at restrictively high levels, implying that the costs of credit cards and mortgages would continue to exert pressure on U.S. consumers—who would also be grappling with high inflation if Trump's plans indeed ignite that issue. There has also been tension between Trump and Powell, with the president-elect initially nominating Powell in 2017 to lead the central bank.

Powell's commitment to the Fed's independence has drawn Trump's ire because the Fed chief ensures that the central bank's decisions are driven by economic data, not the desires of any sitting president. Powell emphasized the importance of the Fed's credibility, citing consumers' inflation expectations as a measure of that. He stated that Americans expecting further moderation in inflation is evidence that people still have faith in the Fed. In a speech on Thursday, Fed Governor Adriana Kugler also discussed the importance of the Fed's independence and credibility, referencing various examples from academic research, and how that is crucial for combating periods of high inflation.

"Growing up in Colombia, I vividly recall the daily challenges of trying to plan and live with sustained double-digit inflation, and I especially remember the pain it imposed on disadvantaged people," Kugler said at an event in Uruguay.