Federal Reserve's Economic Policy Overview

Sep 14, 2024

Economic Policy and Federal Reserve Goals

Dual Mandate Goals

  • Maximum Employment
    • Labor market more balanced
    • Unemployment rate remains low at 4.1%
    • Increase in worker supply and participation
  • Stable Prices
    • Inflation reduced from 7% to 2.5%
    • Committed to achieving a 2% inflation target

Current Policy Stance

  • FOMC decision:
    • Policy interest rate unchanged
    • Continued reduction in securities holdings
  • Maintain restrictive monetary policy to balance demand and supply
  • Attentive to risks affecting employment and inflation goals

Economic Developments

  • GDP Growth
    • Moderated to 2.1% in the first half
    • PDFP grew at 2.6% pace
  • Consumer Spending
    • Slowed but remains solid
  • Investment
    • Increased in equipment and intangibles
    • Housing investment stalled

Labor Market Conditions

  • Job gains average 177,000 per month in Q2
  • Nominal wage growth eased
  • Labor market indicators returning to pre-pandemic conditions

Inflation Trends

  • Inflation remains slightly above target
    • Total PCE prices rose 2.5% over 12 months
    • Core PCE prices rose 2.6%
  • Long-term inflation expectations well-anchored

Monetary Policy Outlook

  • Current target range for federal funds rate: 5.25% to 5.5%
  • No immediate plans to reduce target range until inflation shows sustainable movement towards 2%
  • Decisions made meeting by meeting, data driven

Risks and Considerations

  • Risk of premature policy easing reversing inflation progress
  • Risk of delayed policy easing affecting economic activity
  • Prepared to adjust policy according to data, outlook, and risks

Future Outlook

  • Solid economy allows maintaining current rate if inflation persists
  • Potential policy adjustments if labor market weakens or inflation decreases rapidly

Audience Q&A Highlights

  • September Rate Cut: No decisions yet; data driven approach
  • Inflation and Labor Market: Importance of comprehensive data, including job market indicators
  • Policy Adjustments: Based on evolving economic conditions and risks
  • Economic Forecasts: Does not account for political scenarios
  • Central Bank Digital Currency: Not actively pursued; keeping pace with global developments

Summary

  • Fed remains focused on dual mandate goals
  • Current policies aim to sustain economic stabilization
  • Continuous monitoring of economic indicators to guide decisions
  • Commitment to public mission and transparency in actions