Federal Reserve Chairman Jerome Powell has dismissed market expectations for aggressive interest rate cuts ahead, saying it's premature to claim victory over inflation as more hikes could happen. 

According to CNBC, in prepared remarks for an audience at Spelman College in Atlanta, Powell noted that the Federal Open Market Committee plans to maintain a restrictive policy until confident inflation returns to the 2% target.

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WASHINGTON, DC - NOVEMBER 09: U.S. Federal Reserve Board Chairman Jerome Powell (R) arrives at a panel discussion on “Monetary Policy Challenges in a Global Economy” at the 24th Jacques Polak Annual Research.

Federal Reserve Chairman Jerome Powell Says Talk of Cutting Rates 'Premature'

Jerome Powell asserted that it would be premature to confidently declare "that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease."

He emphasized the committee's readiness to tighten policy further if deemed necessary. While acknowledging that policy is "well into restrictive territory," Powell noted that the balance of risks between doing more or less on inflation is almost close to balanced now.

Market reactions favored a positive interpretation of Powell's comments, with major averages rising on Wall Street and Treasury yields experiencing a significant decline.

Chief economist at LPL Financial Jeffrey Roach said the market's perception of the remarks leans toward "the dovish camp," CNBC reported. While Powell's comments hinted at a potential end to rate hikes, expectations in the market suggest a shift to an easing posture in 2024.

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A Different Path

Earlier this week, a report from ING Economics foresees a different path. The prediction suggests the US Federal Reserve may undertake six interest rate cuts in 2024 amid signs of economic slowdown. 

James Knightley, Chief International Economist at ING Economics, cited reasons such as slowing inflation, a cooling job market, and concerns about consumer spending, necessitating more rate cuts than the market anticipates.

Knightley anticipates the Federal Reserve initiating rate cuts in the second quarter of 2024, with up to six 25 basis point cuts, totaling 150 basis points.

He expects these cuts to expand into 2025 with at least four additional 25 basis point reductions. These projections differ from the market's expectation of a 125 basis point rate cut by the Fed next year.

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