Powell speaks on policy outlook after FOMC decision

Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% and responds to questions in the post-meeting press conference.

In its policy statement, the Fed said that there has recently been a lack of further progress toward the 2% inflation target. Regarding the quantitative tightening strategy, the Fed noted that they will slow the decline of the balance sheet by cutting the Treasury redemption cap to $25 billion per month from $60 billion starting June 1.

Key Quotes

“The economic outlook is uncertain.”

“We do not expect it will be appropriate to cut rates until have greater confidence on inflation moving toward 2%.”

“So far this year, inflation readings have not given us that greater confidence.”

“Likely that gaining greater confidence will take longer than previously expected.”

“Reducing policy too soon or too much or too late or too little both have risks.”

“Policy is well positioned to deal with risks and uncertainties we face.”

“We will make decisions meeting by meeting.”

“Slowing pace of QT does not mean our balance sheet will shrink less than it would otherwise.”

“Slowing the pace of runoff will ensure a smooth transition for money markets.”

“The decision to slow runoff will reduce the possibility of money market stress.”

“I do think policy is restrictive and is weighing on demand.”

“You can see that with the labour market.”

“Saw evidence of that today in the JOLTS report.”

“Quits and hiring rates have normalized.”

“We believe over time policy is sufficiently restrictive to bring inflation back down to 2%.”

“The data will show if that’s so.”

“Unlikely that next policy rate move would be a hike.”

“Policy focus is on how long to keep policy restrictive.”

“To hike, we’d need to see evidence policy is not sufficiently restrictive — that’s not what we see.”

This section below was published at 18:00 GMT to cover the Federal Reserve’s policy announcements and the initial market reaction.

“Fed maintains mortgage-backed securities redemption cap at $35 billion per month, will reinvest excess MBS principal payments into Treasuries.”

“Risks to achieving employment and inflation goals have moved toward better balance over the past year.”

“Inflation has eased over the past year but remains elevated.”

“Fed vote in favor of policy was unanimous.”

Market reaction to Fed policy announcements
The US Dollar came under modest bearish pressure with the immediate reaction. At the time of press, the US Dollar Index was down 0.2% on the day at 106.08.

“Our decisions depend on incoming data.”

“We think policy is well positioned to address different paths the economy might take.”

“If inflation proves more persistent and labor market remains strong, then it could be appropriate to hold off on rate cuts.”

“But there are other paths which would point to rate cuts.”

“That would be if we gain greater confidence and unexpected weakening in labor market.”

“Data will have to answer question of if this is peak rate.”

“To reduce rates, we want to be confident inflation is moving down.”

“Incoming inflation data will be at the very heart of that decision.”

“Not obvious connection between easing in financial conditions and inflation.”

“Wouldn’t rule out that we could still have strong growth or labor market and inflation continue to fall.”

“We will probably have to see wage growth ease to more sustainable levels to reach inflation goal.”

“I don’t know how long it will take before we can cut rates.”

“We do need to take a signal from three worse-than-expected inflation readings.”

“Will take us longer to get ourselves sufficiently confident to change policy rate.”

“Since December, goods and housing inflation has been higher than expected.”

“My expectation is over the course of this year, inflation will move back down but my confidence in that is lower than it was before.”

“Looks like substantial lags in when lower market rents will turn up in the data.”

“Active tool of monetary policy is interest rates.”

“Plan to slow balance sheet runoff is aimed at making it smooth, avoiding market turmoil.”

“Balance sheet slowdown now is to ensure a smooth process and not market turmoil like last time.”

“Economy has been very hard for forecasters to predict.”

“There are paths to not cutting, and paths to cutting — it will depend on the data.”

“As inflation has come down to below 3%, the Fed’s employment goal comes back into focus.”

“I don’t know if inflation will fall enough, or won’t fall enough, to merit rate cuts.”