Federal Reserve Economic Update

Introduction

• Focus on dual mandate goals: maximum employment and stable prices.
• Economy has made progress toward these goals.
• Labor market is balanced, unemployment rate remains low.
• Inflation decreased from 7% to 2.5%.
• Goal to return inflation to 2%.

Current Monetary Policy

• FOMC decided to keep policy interest rates unchanged.
• Continue to reduce securities holdings.
• Maintain a restrictive monetary policy stance to balance demand and supply.

Economic Developments

• Economic activity continues to expand at a solid pace.
• GDP growth moderated to 2.1% in the first half of the year from 3.1% last year.
• Private domestic final purchases grew at 2.6% in the first half.
• Consumer spending slowed but remains solid.
• Equipment and intangible investment increased.
• Investment in housing stalled in the second quarter.

Labor Market

• Supply and demand are balanced in the labor market.
• Payroll job gains averaged 177,000 per month in the second quarter.
• Unemployment rate is low at 4.1%.
• Increase in workforce supply due to participation and immigration.
• Nominal wage growth has eased.

Inflation

• Inflation eased but remains above 2% goal.
• Total PCE prices rose 2.5% over the year.
• Core PCE prices up by 2.6%.
• Inflation expectations remain well-anchored.
• High inflation affects purchasing power negatively.

Future Outlook

• Federal funds rate target remains at 5.25-5.5%.
• Monitoring risks related to employment and inflation.
• No expected rate reduction until confidence in inflation path is stable.
• Decisions will be data-driven.

Potential for Rate Cuts

• Committee has not decided on future rate cuts, including September.
• Rate cuts depend on holistic data, not individual releases.
• Scenarios considered for rate cuts:
  • Inflation moving down as expected, solid growth, and stable labor market might lead to cuts.
  • Stickier inflation might delay cuts.

Labor Market and Inflation Balance

• Emphasis on balanced focus on employment and inflation due to recent progress.
• Rate policy will adjust as economy evolves.

Risks and Considerations

• Potential for further labor market cooling monitored.
• Discussions on economic conditions and policy options ongoing.
• Focus on both mandates equally as conditions stabilize.

Questions and Responses

• Several questions from the press addressing the timing and conditions for potential rate cuts and economic risks.
• Reinforcement of the Fed’s apolitical stance in policy decisions.
• Clarity on not being influenced by upcoming elections.

Central Bank Digital Currency

• Discussion on digital finance and instant payments.
• No current plans for a Central Bank Digital Currency (CBDC).

Conclusion

• Fed remains committed to achieving maximum employment and price stability.
• Continued vigilance on economic data to guide future policy decisions.