By Wong Kon How
One of the most important conferences or seminars we should attend is the press conference after each FOMC meeting. The reporters will have their translations, but I prefer to hear from Jerome Powell himself, as it provides information on what the Fed is thinking.
It is a 22-page transcript, and I have highlighted some of his key statements with added subtitle.
How is inflation situation?
Inflation has eased from its highs, and this has come without a significant increase in unemployment. That is very good news. But inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain.
Economy in 2024:
In our Summary of Economic Projections, Committee participants revised up their assessments of GDP growth this year but expect growth to cool, with the median projection falling to 1.4 percent next year.
What does the inflation data look like so far?
Inflation has eased over the past year but remains above our longer-run goal of 2 percent. Based on the Consumer Price Index and other data, we estimate that total PCE prices rose 2.6 percent over the 12 months ending in November; and that, excluding the volatile food and energy categories, core PCE prices rose 3.1 percent. The lower inflation readings over the past several months are welcome, but we will need to see further evidence to build confidence that inflation is moving down sustainably toward our goal.
When should the interest rate be reduced in 2024?
As is evident from the SEP, we anticipate that the process of getting inflation all the way to 2 percent will take some time. The median projection in the SEP is 2.8 percent this year, falls to 2.4 percent next year, and reaches 2 percent in 2026.
In our SEP, FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario going forward. 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. If the economy evolves as projected, the median participant projects that the appropriate level of the federal funds rate will be 4.6 percent at the end of 2024, 3.6 percent at the end of 2025, and 2.9 percent at the end of 2026, still above the median longer-term rate. These projections are not a Committee decision or plan; if the economy does not evolve as projected, the path for policy will adjust as appropriate to foster our maximum employment and price stability goals.
Hint for the future:
As I noted earlier, since early last year, we have raised our policy rate by 5-1/4 percentage points, and we have decreased our securities holdings by more than $1 trillion. Our restrictive stance of monetary policy is putting downward pressure on economic activity and inflation.
Why many expected Fed to cut rate in 2024?
While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate. We are committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation sustainably down to 2 percent over time, and to keeping policy restrictive until we are confident that inflation is on a path to that objective.
What is it the Fed wanted to see?
And I would just say this, we are seeing, you know, strong growth that appears to be moderating, We're seeing a labor market that is coming back into balance by so many measures, and we're seeing inflation making real progress. These are the things we've been wanting to see. We can't know -- we still have a ways to go. No one is declaring victory. That would be premature, and we can't be guaranteed of this progress.
… which is continuation of what we have seen, which is the labor market coming into better balance without a significant increase in unemployment, inflation coming down without a significant increase in unemployment, and growth moderating without a significant increase in unemployment. That's what we're trying very much to achieve and not something that we're looking to see.
…if there were the beginning of a recession or something like that, then yes, that would certainly weight heavily in that decision.