Fed's Economic Outlook and Monetary Policy

Dec 5, 2024

Chair Powell's Press Conference - July 31, 2024

Key Points

  • Dual Mandate Focus: Powell emphasized the Federal Reserve's commitment to its dual mandate of maximum employment and stable prices.
  • Economic Progress: Substantial progress has been made over the past two years with inflation easing from a peak of 7% to 2.5%.
  • Interest Rate Decision: The Federal Open Market Committee (FOMC) decided to keep the policy interest rate unchanged.
  • Monetary Policy: The Fed is maintaining a restrictive policy to balance demand with supply and manage inflationary pressures.

Economic Developments

  • GDP Growth: Growth moderated to 2.1% in the first half of 2024, down from 3.1% last year.
  • Consumer Spending: Slowed but remains solid.
  • Investment: Equipment and intangibles investment picked up; housing investment stalled in Q2.

Labor Market

  • Job Gains: Average of 177,000 jobs per month in Q2.
  • Unemployment: Slight increase to 4.1%, but still considered low.
  • Wage Growth: Nominal wage growth has eased.

Inflation

  • Current Levels: Total PCE prices rose 2.5% over 12 months; core PCE at 2.6%.
  • Expectations: Long-term inflation expectations remain anchored.

Monetary Policy Outlook

  • Federal Funds Rate: Target range remains at 5% to 5.25%.
  • Future Rate Cuts: Depend on confidence that inflation is sustainably moving toward 2%.
  • Adapting to Economic Changes: The Fed is ready to adjust policy based on economic data and risks.

Press Conference Highlights

  • September Rate Cut: While anticipated by markets, Powell emphasized no decisions have been made.
  • Inflation Confidence: More good data needed to ensure confidence in inflation trends.
  • Labor Market Concerns: Monitoring for signs of a sharper downturn.
  • Economic Conditions: The economy is not overheating nor sharply weakening.

Questions & Responses

  • Rate Cut Expectations: Discussions are ongoing; decisions are data-dependent.
  • Labor Market Changes: Fed is closely monitoring for normalization vs. potential downturn.
  • Independence from Politics: Fed decisions remain apolitical, regardless of election timelines.
  • CBDC Status: No current plans for a central bank digital currency; monitoring developments.

Summary

Chair Powell's conference highlighted a cautious yet optimistic stance on economic recovery and inflation control. The Fed remains data-driven, committed to its dual mandate, and open to adjusting monetary policy as needed. Current policies are designed to support continued economic recovery and manage inflation risks effectively, with a focus on adapting to changes in labor market dynamics and broader economic conditions.