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 25-page transcript, and I have highlighted some of his key statements with added subtitle.
His opening statement
By lowering our policy interest rate by 1/2 percentage point. This decision reflects our growing confidence that, with an appropriate recalibration of our policy stance, strength in the labor market can be maintained in a context of moderate growth and inflation moving sustainably down to 2 percent. We also decided to continue to reduce our securities holdings.
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. If the economy evolves as expected, the median participant projects that the appropriate level of the federal funds rate will be 4.4 percent at the end of this year and 3.4 percent at the end of 2025. These projections, however, are not a committee plan or decision.
If the economy remains solid and inflation persists, we can dial back policy restraint more slowly. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond.
Question:
Should we expect more 0.5% in the months ahead?
His reply:
...we're going to be making decisions meeting by meeting based on the incoming data, the evolving outlook, the balance of risks.
Question:
Question on rising unemployment. Is it your view that this is just a function of a normalizing labor market amid improved supply, or is there anything to suggest that something more concerning perhaps is taking place here, given that other metrics of labor demand have softened too?
His reply:
...if you look at the growth in economic activity data; retail sales data that we just got, second quarter GDP, all of this indicates an economy that is still growing at a solid pace. So that should also support the labor market over time. So, but again, we're-- it bears watching and we're watching.
Question:
And just on the point about starting to see rising layoffs, if that were to happen, wouldn't the Committee already be too late in terms of avoiding a recession?
His reply:
So we're, that's-- our plan of course has been to begin to recalibrate and as you know, we're not seeing rising claims, we're not seeing rising layoffs, we're not seeing that and we're not hearing that from companies that that's something that's getting ready to happen. So we're not waiting for that, because there is-- there is thinking that the time to support the labor market is when it's strong, and not when we begin to see the layoffs. There's some lore on that. So that's the situation we're in. We have, in fact, begun the cutting cycle now and we'll be watching, and that'll be one of the factors that we consider. Of course, we're going to look at the totality of the data as we make these decisions meeting by meeting.
Question:
You're describing this view that you don't think you're behind when it comes to the job market. Can you walk us through the specific data points that you found to be most helpful in the discussions at this meeting? And you've mentioned a couple, but would you be able to walk us through what that dashboard told you as far as what you know about the job market now?
His reply:
Sure, so we'll start with unemployment, which is the single most important one probably, you're at 4.2 percent. That's, I know it's higher than we were used to seeing numbers in the mid and even below mid-threes last year, but if you look back over the sweep of the year, that's a low, that's a very healthy unemployment rate. And anything in the low fours is a really, is a good labor market. So, that's one thing. Participation is at high levels, it's-- we've had, we're right adjusted for demographics for aging. Participation's at pretty high levels, that's a good thing. Wages are still a bit above what would be their-- wage increases rather are still just a bit above where they would be over the very longer-term to be consistent with 2 percent inflation, but they're very much coming down to what that sustainable level is. So we feel good about that. Vacancies over per unemployed is back to what is still a very strong level, it's not as high as it was. That number reached 2 to 1, two vacancies for every unemployed person, as measured, it's now below, it's around one. But that's still, that's still a very good number, I would say. Quits have come back down to normal levels, I mean I could go on and on. There are many, many employment indicators and what do they say? They say this is still a solid labor market. The question isn't the level, the question is that there has been change particularly over the last few months and so what we say is, as the risks, the upside risks to inflation have really come down, the downside risks to employment have increased and because we have been patient and held our fire on cutting while-- while inflation has come down, I think we're now in a very good position to manage the risks to both of our goals.
Question:
Is the Federal Reserve effectively declaring a decisive victory over inflation and rising prices?
His reply:
No. We're not. So, inflation, what we say is we want inflation, the goal is to have inflation move down to 2 percent on a sustainable basis. And we're not really, we're close, but we're not really at 2 percent and I think we're going to want to see it be around 2 percent and close to 2 percent for some time, but we're certainly not doing, we're not saying mission accomplished or anything like that. But I have to say though, we're encouraged by the progress that we have made.
Question:
Is the economy more vulnerable to a shock now that could tip it into recession?
His reply:
I don't think so. I don't, there's-- as I look, well, let me look at it this way, I don't see anything in the economy right now that suggests that the likelihood of a recession, sorry, of a downturn is elevated. Okay? I don't see that. You see growth at a solid rate, you see inflation coming down, and you see a labor market that's still at very solid levels. So, I don't really see that, no. Thank you. Thank you.
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