Fed’s monetary policy statement in brief

Regarding the monetary policy statement, the Fed acknowledged that US economic growth was slowing down in spending and production and commented that labour market conditions remain “robust” and the unemployment rate is slow.

Fed policymakers added that inflation remains elevated, a reflection of the supply/demand imbalances blamed on the pandemic and higher food and energy prices. Even though Fed policymakers mentioned that they are resolute in taming inflation and will continue to tighten monetary conditions, they laid the ground for a slower pace of interest-rate increases. Fed officials added to the statement, “the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.”

As for Fed’s balance sheet reduction, policymakers added that it would keep reducing as expected and added that the Federal Reserve Open Market Committee (FOMC) would be data-dependent, taking into account public health readings, labor market conditions, inflation pressures, and inflation expectations.

The market reacted negatively, sending the US Dollar down, and the S&P 500 rallied toward its daily highs as traders perceived the monetary policy statement. Nevertheless, the Federal Reserve Chair Jerome Powell press conference, shifted the initial markets reaction, as shown below by the S&P 500 5-minute chart.

Key Quotes from Powell’s Speech

No One Knows If There Will Be A Recession

A Soft Landing Is Possible But Window Has Narrowed

Have A Ways To Go, Ground To Cover With Hikes

Strong Economy In US, Says Strong Dollar Is A Challenge For Some Countries

Broader Picture Is Still An Overheated Labour Market

Have A Ways To Go On Rates

Very Premature To Be Thinking About Pausing

If We Overtighten, Can Use Our Tools To Respond

Short-Term Inflation Expectations Have Moved Up, Could Affect Wages

The Time For Slower Hikes May Come ‘As Soon As December’

Data Suggests We May Ultimately Move To Higher Levels Than Anticipated At September Meeting

Need To See Inflation Coming Down Decisively, But We Don’t Need Inflation To Come Down To Slow Pace Of Hikes

We Think Ongoing Hikes Will Be Appropriate To Get Policy Sufficiently Restrictive