Powell signals cautious rate cuts, emphasizes Fed independence and ties with Treasury nominee.

In a media interview on Risk managementDecember 4th, Federal Reserve Chair Jerome Powell hinted that while the Fed will continue to cut interest rates, it will proceed with caution, especially given the current strong economic performance. He stated that the U.S. economic situation is very favorable, with minimal downside risk in the labor market and a rise in inflation, indicating progress in the Fed's efforts to control inflation.

Powell noted that with the strong economic performance, the Fed has more room to adjust monetary policy in a more cautious manner. He mentioned that the Fed can adopt a more prudent strategy when it reaches a neutral stance. He also explained the reason for the 50-basis-point interest rate cut at the Fed's September meeting, saying that the move was to support the labor market, but subsequent revised economic data showed that the U.S. economy was stronger than expected, so the Fed's strategy on rate cuts would be more cautious.

This was Powell's last public statement before the Fed entered a quiet period ahead of its meeting. By convention, the Fed will enter a silence period before the meeting this Saturday, during which Fed officials will not publicly discuss monetary policy.

In the interview, Powell also addressed the issue of the Fed's independence. He stated he is not concerned about the Fed losing its statutory independence and emphasized that the Fed's decisions are based on the interests of the American people, rather than political party needs. Powell pointed out that the Fed was created by Congress, has strong legal independence, and will not be pressured by the White House or other government departments, especially regarding decisions on whether to continue raising interest rates.

Regarding the upcoming establishment of the Department of Government Efficiency, Powell hinted that as a self-funded entity, the Fed will remain independent and can avoid the impact of budget cuts. He stressed that the Fed has strong legal safeguards to operate independently.

Additionally, Powell discussed his relationship with the new U.S. Treasury Secretary candidate, Scott Bessent, indicating that their relationship will be similar to his past relationships with other Treasury Secretaries. He hopes to maintain the tradition of having breakfast with Bessent weekly. Although Bessent proposed the idea of establishing a "shadow chair" for the Fed, Powell dismissed this suggestion, saying it is "completely off the table."

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