Yesterday, Federal Reserve Chairman Jerome Powell spoke out and said that talk of cutting interest rates is premature and more rate hikes could be possible in the future.
The statement, issued during a keynote address at a conference in Washington, goes against the ideas of many in the economic world who are looking to central banks to ease monetary policy through interest rate cuts in the wake of slowing global growth.
The Chairman explained his reasoning for not taking the plunge and said that any decision was dependent on the state of weather and policies of other central banks. By not jumping in and continuing to raise rates, he expressed hope that the central bank could lessen the impact of a slowing global economy through its own actions.
In a nutshell, Powell stated that cutting rates sends a signal that the economy is doing worse than expected which could lead to further economic woes.
He also touched on the importance of fiscal policy in helping to spur growth, noting that Fiscal policy should play “a greater role in stabilizing the economy.” he said, “[t]here must be a greater recognition of the critical role fiscal policy can play in adding to the momentum of the national economy”.
Without a decisive intervention from the Federal Reserve, global economic growth could be further impaired by monetary policy that is too restrictive. However, with Powell’s assurances that more hikes could be possible, the central bank may feel comfortable in taking an aggressive stance in order to combat slow global growth.
It remains to be seen how other central banks will respond to the call for more rate hikes, but one thing is certain: the Federal Reserve is raising the stakes and calling for serious fiscal policy intervention that could help stabilize the global economy. As always, time will tell.