Federal Reserve Chair Jerome Powell said on Monday that last week’s half-percentage-point cut in interest rates shouldn’t be seen as a harbinger of anything more aggressive to come. In fact, he seems to be telegraphing that the central bank will tend toward smaller rate adjustments for now. Speaking at a dinner of the Economic Club of Nashville, Tennessee, Powell said the central bank remains committed to keeping inflation under control while supporting the labor market. 

Looking ahead, if the economy evolves broadly as anticipated, policy will continue to move to a decidedly more neutral stance, he said to the National Association for Business Economics. Powell acknowledged the dual risks involved, noting that decisions would remain meeting-by-meeting-based. 

He said if data continues to come in line, there are two more cuts expected this year, probably a quarter-point each but the markets had been looking for something bigger. “This is not a committee that feels rushed to cut rates quickly,” he said in a subsequent Q&A session with Morgan Stanley economist Ellen Zentner. 

Stock markets had been unfavorable after the speech of Powell and subsequently sent the Dow Jones Industrial Average tumbling over 150 points. Treasury yields also rose, with the benchmark 10-year Treasury note yielding nearly 3.8%, up some 5 basis points. 

Comments are coming in just a few hours after the Federal Open Market Committee voted in favor of an across-the-board 50-basis-point reduction in the Fed’s key overnight borrowing rate. Such a huge move had been typically reserved for huge economic events, like Covid-19 in 2020 or the financial crisis of 2008. 

That is consistent with the Fed’s central tendency in its “dot plot,” which represents officials’ individual projections for future rate paths. The move was a form of policymaker “recalibration,” said chairman Jerome Powell, designed to more closely reflect present economic conditions – yet he added, “The labor market remains strong.” 

Inflation is running at about 2.2% a year according to the Fed’s favorite personal consumption expenditures index in August. Still, that’s near to the Fed’s target of 2%. Powell was sounding optimistic about the resilience of the economy and said inflation tied to housing will also come into line with the decline in the cost of rents. 

Housing services inflation continues to fall slowly, he says. While growth in rentals for new tenants remains subdued, the overall housing inflation is likely to hit an even lower level.