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Following the announcement that interest rates would remain unchanged, FED Chairman Jerome Powell reads a speech live on air and answers questions from reporters.
Here are some important excerpts from Powell’s critical speech:
- The economy is in solid shape.
- Inflation has fallen significantly.
- Inflation is running slightly above the target level of 2%.
- The labor market has reached or is close to maximum employment.
- The risks of rising unemployment and inflation have increased.
- Unusual fluctuations in trade make measuring GDP more complicated.
- Wage growth continued to slow.
- Labor market conditions remain strong.
- Short-term inflation expectations have risen. The labor market is not the primary source of significant inflationary pressure.
- Survey participants indicated that customs duties were the main factor driving inflation expectations.
- Long-term inflation expectations are in line with the target.
- The government is making significant policy changes.
- Customs duties have so far been much higher than expected. If the announced large increase in customs duties continues, there will be higher inflation and lower employment.
- Avoiding persistent inflation will depend on the size of the tariffs, their timing, and inflation expectations.
- The inflationary effects of the policy may be short-lived.
- For now, the FED is ready to wait for the situation to become clearer.
- Our aim is to keep inflation expectations tightly under control.
- If there is a conflict between these two goals, we must consider the distance between the goals and the time required to close the gap.
- I don’t think we should rush to change interest rates.
- Our policy is moderately restrictive.
- The current inflation rate is just over 2%, and the data for housing and non-housing services are not bad either.
- The cost of waiting is quite low.
- For now, the decision to wait seems pretty clear. As events unfold, we can act quickly as appropriate.
- If we see higher inflation, higher unemployment, we will not make any more progress on our goals. We will see a delay in reaching our goals next year.
- It is not possible to immediately determine whether inflation or unemployment is more important.
- In some cases, it may be appropriate to reduce interest rates this year, while in other cases it may not be appropriate to reduce interest rates.
- I cannot say with confidence that I know the appropriate interest rate path.
- US President Trump’s request for a rate cut will not affect our work in any way.
The markets have been volatile since the last FOMC (Federal Open Market Committee) meeting on March 19. The stock market crash on Independence Day, the bond market crisis that followed, the short-term tariff break and the subsequent recovery in stock markets caused sharp declines in investor sentiment, while the strengthening of the labor market and fundamental economic data drew attention. In the shadow of these developments, US President Donald Trump also reiterated his calls for interest rate cuts.
While gold prices have been strong since March, stocks have been generally volatile. Bond yields have risen, while oil prices have fallen sharply.
Markets are increasingly expecting the Fed to cut interest rates three times this year, up from expectations of two cuts prior to the last meeting.
However, the FED not only kept interest rates steady, but also increased concerns about the possibility of stagflation by stating that there were increasing risks that both inflation and unemployment could increase in the economy. The statement said, “the risks of high unemployment and high inflation have increased.”
*This is not investment advice.
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