UPDATE - Fed chair says lowering rates 'begins to come into view'

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By Ovunc Kutlu

ISTANBUL (AA) - US Federal Reserve Chair Jerome Powell said Wednesday it is "premature to declare victory" in the fight against inflation, but said the bank has started considering when to lower interest rates.

"We are moving carefully in making that assessment of whether we need to do more or not," he said in a post-meeting news conference after the Fed skipped an interest rate hike for the fourth time this year, and kept its federal funds rate unchanged between the 5.25% - 5.5% target range – the highest in 22 years.

Powell said the question to lower interest rates "begins to come into view" and it was discussed by the members of the Federal Open Market Committee during the Fed's last meeting of 2023.

While the Fed raised rates by a total of 525 basis points from March 2022 to July 2023 in 11 meetings to fight record inflation, many analysts argued that a soft landing was not possible – a situation where a central bank raises interest rates too much and too high, leading to an economic slowdown but avoiding a recession.

Powell, however, warned that the risk of a possible recession in the US economy still exists.

"There is little basis for thinking that the economy is in a recession now," said Powell but added: "There is always a probability that there will be a recession in the next year. It is a meaningful probability no matter what the economy is doing."

"There are certainly risks, it's certainly possible that the economy would behave in an unexpected way. It has done that repeatedly in the post-pandemic period," he further said.

Powell noted that economic forecasters, generally, have expected a recession in the US economy in 2023, but added it did not happen.

"This was the year when labor force participation picked up, where distortions to supply and demand from the pandemic and the shortages and bottlenecks really began to unwind. We had significant supply side gains with strong demand and we got 2.5% growth a year," he said.

The Fed chair said developments in the US labor market have been "very positive."

"You see job growth still strong but moving back down to more sustainable levels given population growth and labor force participation," he said.

Powell still left the door open for another rate hike and reiterated that FOMC members are "prepared to tighten policy further if appropriate."

"While participants do not view it as likely to be appropriate to raise interest rates further, neither do they want to take the possibility off the table," he said. "It’s not likely that we will hike (interest rates), although we don’t take that possibility off the table."

Powell noted that headline and core inflation expectations for this year have come down significantly since September, and that has led the Fed to begin considering lowering interest rates.