An Executive Summary of Fed Chair Powell’s Comments
Federal Reserve Policy and Regulatory Framework:
- Powell emphasized the significance of completing the Basel 3 process, underscoring it as a critical regulatory priority for the Federal Reserve. The Fed remains committed to carrying out the Basel 3 endgame, although no specific policy or process decisions have been made yet.
Interest Rates and Monetary Policy:
- The Federal Reserve is adopting a cautious and patient approach towards any potential rate cuts. Powell highlighted that significant economic markers, such as meaningful rises in unemployment or persistent inflation trends, would be necessary triggers for considering rate adjustments. He noted that while some global counterparts might be considering rate cuts due to slower growth, the U.S. economic strength affords the luxury of patience.
Inflation and Economic Growth:
- Powell remains optimistic about managing inflation sustainably without causing labor market dislocations. He acknowledged the challenges of achieving the Fed’s 2% inflation target, attributing current inflationary pressures partly to wage increases outpacing productivity. Despite recent progress, Powell indicated that inflation remains above the desired level, and the path to reducing it is uncertain and likely longer than previously anticipated.
Labor Market:
- The labor market’s condition is a crucial factor in the Fed’s policy decisions. Powell expressed confidence in the possibility of reducing inflation without significant labor market upheavals. He also noted the ongoing tightness in the labor market, with nominal wage growth easing but still posing potential inflationary risks.
Political Influence:
- Powell explicitly stated that pending elections and political events do not influence the Fed’s policy decisions. The focus remains strictly on economic indicators and maintaining the dual mandate of controlling inflation and sustaining employment.
Policy Stance and Future Outlook:
- The Federal Reserve plans to maintain a restrictive monetary policy stance as long as necessary to bring inflation down to its target. The decision-making will continue to be data-driven, focusing on new economic information and its implications for inflation and growth. Powell reiterated the Fed’s commitment to its long-term goals, underscoring the importance of not adjusting policy prematurely based on fluctuating economic signals.
Overall Economic Conditions:
- Powell noted the difficulty in forecasting economic conditions, acknowledging the unexpected persistence of certain inflationary pressures and the unpredictability of productivity trends. He remains committed to adjusting policies as more data becomes available, with a careful balance to avoid disrupting financial markets or economic stability.
In the markets:
The US stocks moved higher through the decision to the end of the press conference, but is moving back lower post presser:
- Dow industrial average up 460.62 points versus a gain of 120.36 points just prior to the decision. The current price is up 275 points
- S&P index 50.37 points points versus -11.64 points just prior to the decision. The current prices up 14.99 points
- NASDAQ index 239.91 points versus -37.37 points just prior to the decision. The current prices up 79 points
US yields move lower from the start to the end, and is modestly higher post presser. :
- 4.964%, -8.2 basis points versus 5.0206% just prior to the decision. The current yield is at 4.953%.
- 4.649%, -7.3 basis points versus 4.697% just prior to the decision. The current yield is at 4.646%.
- 4.630%, -5.4 basis points versus 4.651%, just prior to the decision. The current yield is at 4.6 to 8%
- 4.744%, -4.5 basis points versus 4.744%, just prior to the decision. The current yield is at 4.746%
In the forex:
- The EURUSD moved higher through (lower USD) through most of his speech, but once it reached the upper swing area between 1.0722 and 1.07346, sellers have entered and pushed the price back toward the 1.0700 level and the 100 hour moving average and 200 hour moving average between 1.06908 and 1.07024.
- USDJPY: The USDJPY could not get below the 100 hour MA target at 157.00 area. The price has moved back above the swing area at 157.232.