Highlights
The Federal Reserve has stepped down its rate hikes from 50 basis point to 25 points but whether the next move will be no change at all would be jumping to conclusions. That's a fair assessment of Jerome Powell's opening statement at his press conference, comments that buy time for the next round of indicators to assess the still unfolding effects of last year's aggressive and rapid run of rate hikes.
Powell repeatedly stressed in his opening remarks that there is"still more work to do", that"ongoing increases" in the federal funds rate as well as the ongoing shrinkage of the bank's balance sheet"will be appropriate". He said that a"restrictive stance" of monetary will be needed"for some time". Though this would suggest that another rate hike is in store for the Fed's next meeting in March, Powell also stressed that decisions will be made on a"meeting by meeting" basis based on"incoming data".
Powell noted that the effects of prior hikes are most evident in those economic sectors most sensitive to interest rates, especially housing which is cooling. Yet the labor market is not cooling, still"extremely tight" according to the Fed chair with job vacancies unusually high and wage gains, despite some signs of easing, nevertheless"robust".
On inflation, Powell cited last year's 5.0 percent rate for the PCE price index and 4.4 percent core rate excluding food and energy, both of which are far above the Fed's 2 percent target. Yet he did note a reduction in the 3-month average pace which he described as"encouraging" though he added that this is"not grounds for complacency" and that officials will"need substantially more evidence" that inflation has cooled before easing policy.
In the question and answer session, Powell repeatedly mentioned that non-housing services inflation has yet to show much improvement. While inflation that was the result of hot demand created by the circumstances of the pandemic has yielded to more restrictive monetary policy, there is a core within core inflation measures that so far remains elevated. He noted that 56 percent of the core sector is services excluding housing. It is this type of inflation (such as medical services and transporation services) that Powell particularly means when he speaks of the Fed's job in bringing inflation down is not yet done.
Powell sees a path for monetary policy to tame inflation without sending the US economy into recession. It is narrow and is likely to be characterized by a period of subpar growth. Powell noted several times that the current business cycle is not a typical one, which makes charting the path difficult.
Powell said,"It is a good thing that the disinflation that we have seen so far has not come at the expense of the job market," but added that it is too early to say the situation will not change. Powell said that to date the Fed has taken"forceful actions" with 450 basis points of rate hikes in less than a year, and that the"full effects are not yet felt". However, he concluded that the FOMC"has work still to do" in the inflation fight. In the meantime, the story on non-housing services inflation"will emerge soon enough".
Powell's outlook remains one of ongoing rate hikes needed to bring monetary policy to a sufficiently restrictive stance to ensure that inflation does not become entrenched, or that the FOMC lets up too soon. Powell said,"It will not be appropriate to cut rates this year" unless inflation comes down much faster than forecast.
Powell repeatedly stressed in his opening remarks that there is"still more work to do", that"ongoing increases" in the federal funds rate as well as the ongoing shrinkage of the bank's balance sheet"will be appropriate". He said that a"restrictive stance" of monetary will be needed"for some time". Though this would suggest that another rate hike is in store for the Fed's next meeting in March, Powell also stressed that decisions will be made on a"meeting by meeting" basis based on"incoming data".
Powell noted that the effects of prior hikes are most evident in those economic sectors most sensitive to interest rates, especially housing which is cooling. Yet the labor market is not cooling, still"extremely tight" according to the Fed chair with job vacancies unusually high and wage gains, despite some signs of easing, nevertheless"robust".
On inflation, Powell cited last year's 5.0 percent rate for the PCE price index and 4.4 percent core rate excluding food and energy, both of which are far above the Fed's 2 percent target. Yet he did note a reduction in the 3-month average pace which he described as"encouraging" though he added that this is"not grounds for complacency" and that officials will"need substantially more evidence" that inflation has cooled before easing policy.
In the question and answer session, Powell repeatedly mentioned that non-housing services inflation has yet to show much improvement. While inflation that was the result of hot demand created by the circumstances of the pandemic has yielded to more restrictive monetary policy, there is a core within core inflation measures that so far remains elevated. He noted that 56 percent of the core sector is services excluding housing. It is this type of inflation (such as medical services and transporation services) that Powell particularly means when he speaks of the Fed's job in bringing inflation down is not yet done.
Powell sees a path for monetary policy to tame inflation without sending the US economy into recession. It is narrow and is likely to be characterized by a period of subpar growth. Powell noted several times that the current business cycle is not a typical one, which makes charting the path difficult.
Powell said,"It is a good thing that the disinflation that we have seen so far has not come at the expense of the job market," but added that it is too early to say the situation will not change. Powell said that to date the Fed has taken"forceful actions" with 450 basis points of rate hikes in less than a year, and that the"full effects are not yet felt". However, he concluded that the FOMC"has work still to do" in the inflation fight. In the meantime, the story on non-housing services inflation"will emerge soon enough".
Powell's outlook remains one of ongoing rate hikes needed to bring monetary policy to a sufficiently restrictive stance to ensure that inflation does not become entrenched, or that the FOMC lets up too soon. Powell said,"It will not be appropriate to cut rates this year" unless inflation comes down much faster than forecast.
Definition
The Fed announced in 2011 that then Fed Chair Ben Bernanke would hold press briefings four times a year to explain the FOMC's latest quarterly economic projections. The purpose of the briefings is to provide additional context for the FOMC's policy decisions and to allow for questions-and-answers with the press. According to the Fed, the"introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication." The press briefing is held at 2:30 p.m. ET on the days of FOMC statements in which quarterly projections are released. Beginning in 2019, the briefing will be held after each FOMC meeting. The policy statement is released at 2:00 p.m. ET after the conclusion of every FOMC meeting regardless of whether there are forecasts or not.
Description
The Fed’s meeting statement and economic projections can move financial markets. However, the Fed’s meeting statement — which indicates any changes in monetary policy—typically is very concise and lacking in detail. However, the Fed now releases its economic forecasts four times a year. As of March 20, 2013, the forecasts are released at the same time as the FOMC statement during the months of March, June, September, and December. After each of the 8 Fed meetings, the chair holds a press conference to explain the forecasts and other policy issues. The chair’s press conference allows for the financial markets and public in general to learn more about why and how the monetary policy decision was made and to learn more about FOMC views on the direction of the economy—including real growth, inflation, unemployment, expected timing of changes in the fed funds rate, and expected levels of the fed funds rate in the near term.
