Monetary Policy
- The FOMC announced it will reduce the Federal Funds target rate by 25 basis points to a range of 4.50 – 4.75%, a decision widely expected by markets. The decision was unanimous among FOMC voters.
- Today’s rate cut follows a 50 bps reduction in September that began what is anticipated to be a cycle of easing monetary policy. Guidance about future Fed actions was limited in the FOMC statement and Chairman Powell’s press conference.
- The new statement included a number of adjustments to language that could be interpreted as a subtle acknowledgment of post-election uncertainty. Among other changes, the statement removed previous language regarding the committee’s confidence “that inflation is moving sustainably toward 2 percent…” This follows last week’s release of September PCE inflation data showing 12-month PCE had dropped to 2.1%. Powell suggested this language was removed as the Committee doesn’t want to tie themselves to providing such guidance at each meeting.
- Market response to the Fed announcement was limited. US Treasury yields ended the day lower, but most of the action took place prior to the announcement. The S&P 500 closed the day up 0.74%.
- Chairman Powell remarked in his opening statement at the press conference “We are not on any preset course. We will continue to make our decisions meeting by meeting” but also noted that “we are on a path to a more neutral stance”.
- Powell’s comments during the press conference included some very direct, pointed statements. When asked if he would resign should the president-elect seek that, Powell simply said “No.” When asked if the president had the power to fire or demote him or Fed governors, Powell stated that was “Not permitted under the law.”
Economic Conditions
- Powell suggested the Fed is not ready to declare victory on inflation but expects inflation will continue to moderate on a bumpy path over the next couple years toward the Fed’s target. Powell cited slow turnover in housing price data as a lagged contributor to the still-elevated core inflation level. Powell further indicated he believes the current level of wage increases is consistent with a 2% total level of inflation and the Fed does not believe that additional labor market softening is necessary to return inflation to 2%.
- Powell didn’t mince words when asked about the US deficit, stating the US government’s “fiscal policy is on an unsustainable path. The level of our debt relative to the economy is not unsustainable. The path is unsustainable.”
The FOMC is next scheduled to meet December 17th – 18th, 2024. That meeting will include a new Summary of Economic Projections.
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