Jerome Powell announced that the Federal Open Market Committee (FOMC) decided to leave the policy interest rate unchanged at its current meeting. The target range for the federal funds rate will remain at 4.25% to 4.5%, and the committee will continue reducing the size of its balance sheet.
Here's a summary of what he said and what it means for the economy:
Fed's Core Mandate and Current Stance:
• The Federal Reserve remains focused on its dual mandate goals of maximum employment and stable prices for the American people.
• The current stance of monetary policy is believed to be well-positioned to respond in a timely way to potential economic developments. It is seen as appropriate to guard against inflation risks.
• The Fed will continue to determine the appropriate stance of monetary policy based on incoming data, the evolving outlook, and the balance of risks.
• For the time being, the Fed is well-positioned to learn more about the likely course of the economy and the evolving balance of risks before adjusting its policy stance.
Current Economic Conditions:
• Economic Growth: Recent indicators suggest that growth of economic activity has moderated. GDP rose at a 1.2% pace in the first half of this year, down from 2.5% last year, largely reflecting a slowdown in consumer spending. Business investment in equipment and intangibles, however, picked up, while activity in the housing sector remains weak.
• Labor Market: Conditions have remained solid.
◦ Payroll job gains averaged 150,000 per month over the past three months.
◦ The unemployment rate remains low at 4.1% and has stayed in a narrow range.
◦ Wage growth has continued to moderate, though still outpacing inflation.
◦ Overall, conditions in the labor market are broadly in balance and consistent with maximum employment.
• Inflation: Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to the 2% longer-run goal.
◦ Total PCE (Personal Consumption Expenditures) prices rose 2.5% over the 12 months ending in June, and core PCE (excluding food and energy) rose 2.7%.
◦ Near-term measures of inflation expectations have moved up due to news about tariffs.
◦ However, most measures of longer-term expectations remain consistent with the 2% inflation goal.
What it Means for the Economy - Key Considerations:
• Policy Stability (for now): Keeping rates on hold signals the Fed believes its current policy is restrictive enough to bring inflation down without significantly harming employment, allowing them time to assess incoming data.
• Uncertainty from Government Policies (Tariffs): Changes to government policies continue to evolve, and their effects on the economy remain uncertain.
◦ Higher tariffs have begun to show through more clearly to prices of some goods.
◦ Their overall effects on economic activity and inflation remain to be seen.
◦ A reasonable base case suggests the inflationary effects could be short-lived, reflecting a one-time shift in the price level.
◦ However, it's also possible these effects could be more persistent, which is a risk the Fed will assess and manage.
◦ The Fed's obligation is to keep longer-term inflation expectations well anchored and prevent a one-time increase in the price level from becoming an ongoing inflation problem.
• Data Dependence: Future adjustments to policy will depend heavily on upcoming economic data, the evolving outlook, and the balance of risks. The Fed will receive a good amount of data in coming months to inform its assessment.
• Commitment to Goals: The Fed remains committed to supporting maximum employment, bringing inflation sustainably to its 2% goal, and keeping longer-term inflation expectations well anchored, recognizing that its actions affect communities, families, and businesses.
Monetary Policy Framework Review:
• The committee is also continuing its discussions as part of its 5-year review of the monetary policy framework, focusing on potential revisions to its statement on longer-run goals and monetary policy strategy. They are on track to wrap up any modifications by late summer.