Powell hints at possible rate cut in October…quantitative tightening ending soon

Powell "No major change in economic outlook"…maintains accommodative stance

"End of quantitative tightening imminent"

Indicates final stage of $6.6 trillion asset reduction

Jerome Powell, chair of the U.S. central bank (Fed), on the 14th (local time) hinted at the possibility of a rate cut at the regular Federal Open Market Committee (FOMC) meeting to be held on the 28th–29th.

Powell, at an economic conference held in Philadelphia, did not definitively forecast an additional rate cut at the October FOMC meeting but also did not make remarks contrary to market expectations. He said, "There has been no major change in the economic outlook since last month's meeting," maintaining the existing accommodative stance.

Powell said the Fed is trying to balance two conflicting risks. He said, "If rates are cut too quickly, we may fail to complete the task of stabilizing inflation, and conversely, if they are cut too late, painful losses may occur in the labor market."

He continued, "There is no longer a 'risk-free path'," explaining, "Inflation is continuing to rise moderately, but at the same time the labor market is showing significant downside risk." He also pointed out that both labor supply and demand are clearly declining.

Powell indicated that the Fed's more-than-three-year process of shrinking assets — quantitative tightening — totaling $6.6 trillion is approaching its end. Since mid-2022 the Fed has been gradually reducing an asset portfolio that had reached $9 trillion. This was carried out by allowing Treasury securities and mortgage-backed securities (MBS) purchased to stimulate the economy after the 2020 COVID-19 pandemic to run off at maturity without reinvestment. This process has the effect of absorbing deposits (reserves) from the banking system. The Fed had continued the reduction until it saw signs that the market was not excessively awash in liquidity.

Powell said, "We may reach that point (an appropriate level of reserves) within a few months."

New York=Shin-young Park, correspondent nyusos@hankyung.com