Powell Speech: Upside Risks to Inflation Have Decreased

Federal Reserve Chairman Jerome Powell recently explained the decision to leave the policy rate (federal funds rate) unchanged in the range of 5.25% to 5.5%. During the post-meeting press conference, Powell addressed questions and provided insights.

Interest Rates and Inflation:

• The Fed maintained interest rates at a two-decade high.

• The central bank, however, left the door open for rate cuts, with the possibility of adjustments as early as the next meeting in September.

• Inflation has receded, and there are signs that high borrowing costs are impacting the labour market, leading to expectations of rate reductions.

Labour Market and Policy Outlook:

The labour market has shown signs of softening, with job gains moderating and the unemployment rate rising slightly. The Fed remains attentive to risks related to both the labour market and inflation. Financial markets anticipate a September rate cut and the potential for further cuts by year-end.

Key Takeaways:

“Some people examined the case today for moving at this meeting.”

“But overwhelmingly the sense of Committee was not at this meeting, but at next meeting if data supports it.”

“No question that is now our base case.”

“The time is approaching for a rate cut.”

“Chances of hard landing are low.”

“It’s neither overheating or sharply weakening economy.”

• Upside risks to inflation have decreased.

• Downside risks to the employment mandate are now real.

• The policy rate is clearly restrictive.

• The Fed will closely monitor data between now and September.

Overall, the Federal Reserve is carefully navigating the delicate balance between inflation and economic activity.