US Federal Reserve decided to cut interest rates by 50 bps to 5% today. Here is the Jerome Powell press conference highlights:
- Fed confidence about still favorable labor market conditions and falling inflation is growing. However, inflation has eased notably, but remains above our goal.
- Unemployment risen but is still at low, historical levels; labor market is not pressure inflation as for now
- The Fed can maintain labor strength with policy adjustment, while consumer spending has remained resilient.
- Our decision today reflects growing confidence that strength in the labor market can be maintained.
- The economy is strong overall and inflation expectations are well anchored (at low levels) according to Fed sources and household surveys
- Downside risk for labor market risen, so Fed needs to balance it by rate cut accordingly; cutting rates too slowly may be more risky for US economy
- The labor market not a source of elevated inflationary pressures and continued to cool, which has been a notable step down from earlier this year. The labor market has cooled from a formerly overheated state.
- Fed projections show we expect GDP growth to remain solid. The bank will decide on rates meeting by meeting
"Our projections indicate that we don't need to be in a hurry" (dovish overtones that may suggest that the Fed is confident of a soft landing). Powell added also that 'No one should look at today and think that is a normal pace'. However, Fed chair commented that the US labor market is in solid condition now and the Fed wants to 'keep it there', which may be interpreted as a signal, that Wall Street can 'count' on Fed monetary easing if needed.
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- The risk of rising inflation is diminishing, while the risk of a decline in the labor market is increasing.
- We don't need to see further loosening of labor market to get inflation down to 2% target
- There was broad support for a 50 bps cut today. There was a good discussion.
- Now we can go quicker or slower, or pause, on rate cuts if it is appropriate. Fed projections are a baseline projection; actual things we do depend on how the economy evolves. If the labor market deteriorates, we can respond.
- If the economy remains solid and inflation persists, we can dial back policy more slowly.
Powell maintains a dovish stance and suggests that a soft landing in the economy after the rate hike cycle will be maintained. The EURUSD pair extends gains slightly, however, the US100 halts some of the early upward momentum. Gold breaks out to new historic highs and tests the $2,600 per ounce level.
Source: xStaion5
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