Fed Chair says inflation in U.S. 'eased substantially,' 50 bp rate cut reflects ‘growing confidence’ inflation falling to 2%

U.S. Federal Reserve Chair Jerome Powell said Wednesday that inflation in the U.S. "eased substantially" after the central bank delivered its first interest rate cut in more than four years.

The Fed lowered the interest rate by 50 basis points to the range of 4.75% - 5.0%, starting its monetary easing aggressively.

Powell said the rate cut reflects "growing confidence" among the Federal Open Market Committee (FOMC) members that inflation is falling to 2%.

"We've been very patient about reducing the policy rate," he said at a post-meeting news conference. "(While) other central banks around the world cut (interest rates), many of them several times, we've waited.

"That patience really paid dividends in the form of our confidence that inflation is moving sustainably toward 2%," he added.

The upside risks to inflation have diminished and the downside risks to employment have increased, as inflation has declined and the labor market has cooled, he said.

The Fed chair warned that reducing the monetary policy restraint too quickly could hinder progress on inflation, while reducing the policy restraint too slowly could "unduly weaken" economic activity and employment.

He said the "recalibration" of the policy stance will help maintain the strength of the U.S. economy and the labor market, while it would continue to enable further progress on inflation as the bank begins the process of moving toward a more "neutral stance."

"If the economy remains solid and inflation persists, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond," he explained.

Monetary policy is "well positioned" to deal with the risks and uncertainties the Fed faces in pursuing both sides of its dual mandate, he said.

The chair, however, warned that nobody should look at a 50 basis points rate cut and regard it as "the new pace" in monetary easing.

"We're going to go carefully meeting by meeting and make our decisions as we go," he said.

Powell said the U.S. labor market is in "solid condition" and the American economy is in "good shape," adding it is growing at "a solid pace."

He emphasized, however, that he does not expect "a world of ultra-low interest rates" nor "an era of cheap money returning" amid monetary easing.

"Many people would say we are probably not going back to that era where there were trillions of dollars of sovereign bonds trading at negative rates, long-term bonds trading at negative rates," he said.

Powell added that the Fed's current objective is to keep inflation stable and making sure jobless rates do not increase.

"We're trying to achieve a situation where we restore price stability without the kind of painful increase in unemployment that has come sometimes with disinflation," he explained.

The chair noted that investors should take the rate cut as a sign of the bank's "strong commitment" to achieving the goal of keeping inflation stable and keeping the unemployment rate in check.

Amid the jumbo rate cut, Powell said he does not see "anything in the economy right now that suggests the likelihood of a recession" or "an elevated downturn" in the economy.