FED President Speaks: Here are the Highlights!

The Federal Reserve left the Fed funds rate steady, in line with expectations. Fed Chairman Jerome Powell speaks at a press conference following the interest rate decision. Now, Fed Chairman Jerome Powell explains his decision to leave the policy rate, that is, the federal funds rate, unchanged in the range of 5.25%-5.5% and answers questions at the press conference held after the meeting.

Fed President Jerome Powell speaks after the interest rate decision!

In March, the median Fed forecast was on the side of three rate cuts. In addition, markets now expect fewer discounts as inflation generally exceeds assumptions in 2024. On the other hand, the May Consumer Price Index (CPI) report, published on the same day, pointed to a softer inflation. Markets are pricing in two discounts this year, the first of which will be in September. Amid these expectations, the Fed left interest rates constant, in line with expectations. Following the interest rate decision, all eyes turned to Fed Chairman Jerome Powell for the critical messages he would give.

Powell: We don’t have more confidence in inflation for rate cut

• Our economy has made significant progress.
• Strong employment increases continue in the economy.
• Inflation has decreased significantly but is still very high.
• We continue to maintain a restrictive stance to keep demand in line with supply.
• Latest indicators point to economic growth still expanding strongly.
• A clearer signal is that private domestic buying remains strong.
• Consumer spending continues to be strong.
• Equipment investment recovered from an anemic pace.
• The labor market is becoming more stable.
• April and May employment rates are still strong and the unemployment rate remains low.
• A broad set of indicators suggest that the labor market is returning to its pre-pandemic level.
• Overall, a broad set of indicators on the labor market suggest that the market is relatively tight but not too hot.
• We expect the labor market’s strength to continue.
• More recent readings of inflation have shown easing.
• So far this year, we don’t have any more confidence in inflation to cut rates.
• We will need to see more good data to support confidence in inflation.

Fed President: We will continue to make decisions meeting by meeting

• The Summary of Economic Assumptions is not a plan or a random decision.
• Policy evaluation will be adjusted.
• If the economy remains solid and inflation continues, it will keep interest rates where they are for as long as necessary.
• The opposite is also true for interest rate cuts.
• The policy is well positioned, it will continue to make decisions meeting by meeting.
• We remain slightly conservative regarding our inflation outlook.
• Our confidence in the forecasts is not high.
• We welcome today’s inflation data and hope for more like it.
• We need more confidence that inflation will return to 2%.
• The test for a rate cut is greater confidence that inflation is moving towards 2%.
• We have a very conservative bet on inflation, if we get better information, I think we will see the bets fall.
• We all agree that we are dependent on data.
• No one on the Committee has a strong commitment to a rate cut.
• We do not have a specific interest rate reduction commitment.
• Policymakers are not trying to send a strong signal with assumptions.

Valuable takeaways from Fed policy statement and dot chart

• The median view of Fed officials for the end of 2024 is 5.1% (previously 4.6%).
• The median view of Fed officials for the end of 2025 is 4.1% (previously 3.9%).
• According to the median opinion of Fed officials, the Fed funding rate at the end of 2026 is 3.1% (previously 3.1%).
• The median view of Fed officials on the long-term funding rate is 2.8% (previously 2.6%).
• Fed projections envisage an interest rate cut of 25 basis points from the current level in 2024 and another 100 basis points in 2025.
• Fed policymakers expect end-2024 PCE inflation to be 2.6% versus 2.4% in the March projection; It sees core inflation at 2.8% versus 2.6%.
• Fed policymakers see GDP growth of 2.1% and unemployment rate of 4% in 2024; both were unchanged from March.
• Forecasts show 2025 PCE and core PCE inflation will be 2.3% versus 2.2% in March.
• Modest progress has been made towards the 2% inflation target.
• The Fed does not think it would be appropriate to reduce the policy target range until it gains more confidence that inflation is sustainably moving towards 2%.