Fed Chair Powell says interest rate cut made to maintain strong U.S. economy

Sept. 18 (UPI) -- Federal Reserve Chair Jerome Powell said during a Wednesday press conference that the first interest rate cut since 2020 is designed to maintain the strong U.S. economy.

"The U.S. economy is in a good place and our decision today is designed to keep it there," Powell said. "Our intention is to maintain the strength we currently see in the U.S. economy."

For the first time since 2020, the Federal Reserve on Wednesday cut interest rates as expected amid falling inflation in the U.S. economy. Rates were cut by 50 basis points, or a half percent.

The Federal Reserve's FOMC said in a statement, "In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5%."

The cut was made possible by inflation that has fallen from a COVID-19 pandemic high of 9.1% to the current inflation rate of 2.5%.

Powell said he understands the pain many people are experiencing from high prices, but he said the inflation rate is considerably lower now and he believes the lower inflation level is sustainable.

"We had a burst of inflation and many other countries around the world had a similar burst of inflation. Interest rates were raised to reduce inflation," Powell said. "People don't experience that as pleasant but, in the end, you get low inflation restored."

He added that what the Fed is doing now "will benefit many people over a long time."

Powell said politics is not a factor in Fed decisions.

"The policy process is always the same," he said. "To support the economy on behalf of the American people. We don't put up any other filters."

On the labor market, Powell said, "Labor market conditions have cooled off by any measure but the level of those conditions is still close to maximum employment."

He said the current unemployment rate of 4.2% is a very healthy unemployment rate.

Powell said the Fed is not declaring "mission accomplished" on inflation but he is encouraged by the progress that's being made.

He added, "The U.S. economy is basically fine."

He said most members of the FOMC anticipate that economic conditions will allow a succession of more interest rate reductions.

The Fed inflation target is 2%, but a rate cut was designed to help protect the economy from a recession after years of rising rates.

The FOMC Wednesday statement said, "The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance. "

Ahead of the announcement debate raged on if the cut will be the traditional one-quarter of a percent or a heftier one-half point.

According to CNBC, Mark Zandi , chief economist at Moody's Analytics, said, "They have achieved their mandate for full employment and inflation back at target, and that's not consistent with a five-and-a-half percent-ish funds rate target. So, I think they need to normalize rates quickly and have a lot of room to do so."

While inflation is down sharply from its COVID-19 pandemic high of 9.1%, its current 2.5% remains off the Fed benchmark growth of 2%.

While hiring in the country has slowed, the unemployment rate remains low at 4.2%.

Housing continued to be a major driver of rising prices jumping 0.5% in August while prices in the core items - minus energy and food - increased by 0.3% last month.

Powell told reporters Wednesday that "Housing inflation is dragging a bit. It's been slower than we expected. But the direction of travel is clear."

He said while housing inflation reduction is not moving as fast as the Fed would like, "We will get down to 2% inflation I believe, and ultimately we will get what we need out of the housing piece, too."