Fed Chair Powell: Likely Appropriate to Cut Rates This Year

Bloomberg Television

6 Mar 202405:13

Summary

TLDRIn this monetary policy report, the Federal Reserve chair outlines the central bank's commitment to restoring price stability and achieving its dual mandate of maximum employment and stable inflation. While acknowledging progress made in easing inflation without significantly impacting unemployment, the chair emphasizes that inflation remains above the 2% target. The Fed has maintained a restrictive monetary policy stance but suggests the possibility of adjusting policy restraint at some point this year if economic conditions evolve as expected. However, the chair underscores that any policy adjustments will be carefully assessed to ensure sustainable progress toward the 2% inflation goal, anchoring long-term inflation expectations and promoting long-term economic stability.

Takeaways

🎯 The Federal Reserve remains focused on achieving maximum employment and stable prices (inflation rate of 2%).
📉 While inflation has eased substantially, it remains above the Fed's 2% target, prompting continued efforts to bring it down.
🔍 The Fed is closely monitoring inflation risks and is aware of the hardship high inflation causes, especially for low-income households.
💪 The Fed is strongly committed to restoring price stability, which is essential for achieving sustainable strong labor market conditions.
📈 Economic activity expanded at a strong pace in 2023, with GDP increasing by 3.1%, bolstered by solid consumer demand and improving supply conditions.
💼 The labor market remains relatively tight, with job gains averaging 239,000 per month and the unemployment rate near historic lows at 3.7%.
⚖️ Labor supply and demand conditions have continued to come into better balance, with job vacancies declining and nominal wage growth easing.
🌐 Long-term inflation expectations appear to have remained well-anchored, as reflected by various surveys and financial market measures.
🔒 The Fed has maintained a restrictive stance of monetary policy, with the federal funds rate at 5.25% to 5.5%, and has continued to shrink its balance sheet.
⏳ The Fed believes it may be appropriate to begin dialing back policy restraint at some point this year, but the timing and extent will depend on ongoing progress toward the 2% inflation objective.

Q & A

What are the Federal Reserve's primary objectives?
-The Federal Reserve's primary objectives are to promote maximum employment and maintain stable prices for the American people.
How does the speaker assess the current state of the economy?
-The speaker acknowledges that while inflation remains above the 2% target, it has eased substantially, and this progress has been achieved without a significant increase in unemployment. The economy has made considerable progress towards the Fed's dual mandate.
What is the Federal Reserve's stance on inflation?
-The Federal Reserve is strongly committed to returning inflation to its 2% objective and restoring price stability, as it is essential for achieving a sustained period of strong labor market conditions that benefit all.
How does the speaker describe the current labor market conditions?
-The labor market remains relatively tight, but supply and demand conditions have continued to come into better balance. Job gains have averaged 239,000 per month since mid-2022, and the unemployment rate has remained near historical lows at 3.7%.
What actions has the Federal Reserve taken to address inflation?
-The Federal Reserve has significantly tightened the stance of monetary policy since early 2022, maintained the target range for the federal funds rate at 5.25% to 5.5% since July, and continued to shrink its balance sheet at a brisk and predictable pace.
What is the Federal Reserve's outlook on future monetary policy adjustments?
-The Federal Reserve believes that the policy rate is likely at its peak for this tightening cycle if the economy evolves broadly as expected. It may be appropriate to begin dialing back policy restraint at some point this year, but any adjustments will be carefully assessed based on incoming data, the evolving outlook, and the balance of risks.
What criteria will the Federal Reserve consider before reducing the target range for the policy rate?
-The Federal Reserve does not expect that it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.
How does the speaker emphasize the Federal Reserve's commitment to its goals?
-The speaker states that the Federal Reserve remains committed to bringing inflation back down to its 2% goal and keeping longer-run inflation expectations well-anchored, as restoring price stability is essential to achieving maximum employment and stable prices over the longer run.
What is the overall tone and message conveyed by the speaker?
-The overall tone is one of cautious optimism, acknowledging progress made but emphasizing the Federal Reserve's unwavering commitment to achieving its dual mandate of maximum employment and price stability through careful monitoring and data-driven policy adjustments.
How does the speaker address the impact of the Federal Reserve's actions on the public?
-The speaker acknowledges that the Federal Reserve's actions affect communities, families, and businesses across the country, and states that everything they do is in service to their public mission of achieving maximum employment and price stability goals.

Outlines

00:00

📈 Federal Reserve's Commitment to Economic Progress

The Federal Reserve remains focused on its dual mandate of promoting maximum employment and stable prices. Although inflation remains above the 2% target, it has eased substantially without significant unemployment increases. The economy expanded strongly in 2023, with GDP growth of 3.1%, driven by solid consumer demand and improving supply conditions. The labor market remains tight, with job gains averaging 239,000 per month since mid-year and an unemployment rate of 3.7%. Inflation has eased notably but remains above the 2% goal, with core PCE prices rising 2.8% over the past 12 months. The Fed has raised interest rates and shrunk its balance sheet to combat inflation. While policy restraint may need to be reduced at some point this year, the Fed remains committed to bringing inflation down to 2% sustainably.

05:01

🎯 Unwavering Dedication to Economic Objectives

The Federal Reserve reaffirms its commitment to achieving its maximum employment and price stability goals. It acknowledges the impact of its actions on communities, families, and businesses across the country and pledges to do everything within its power to accomplish its public mission.

Mindmap

Keywords

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central bank of the United States. It plays a crucial role in the country's monetary policy by influencing interest rates, regulating banks, and ensuring the stability of the financial system. In the context of the video, the Federal Reserve is focused on its dual mandate to promote maximum employment and stable prices, striving to achieve a balance between these objectives amidst inflationary pressures and economic growth.

💡Dual mandate

The dual mandate refers to the Federal Reserve's two main objectives: to promote maximum employment and to maintain stable prices. This mandate guides the Fed's policy decisions, including adjustments to interest rates to control inflation without negatively impacting employment levels. The video highlights the Fed's efforts to navigate these objectives, noting progress towards balancing inflation and employment in the current economic climate.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, eroding purchasing power. The video discusses how inflation has been above the Federal Reserve's objective of 2% but has shown signs of easing, indicating progress towards price stability. High inflation is particularly challenging as it imposes significant hardship, especially on those least able to afford rising costs.

💡Monetary policy

Monetary policy involves the management of a nation's money supply and interest rates by its central bank to achieve macroeconomic objectives such as controlling inflation, consumption, growth, and liquidity. The video outlines the Federal Reserve's use of monetary policy tools, including adjusting the federal funds rate and reducing its balance sheet, to influence economic activity and inflation.

💡Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. The video mentions a 3.1% increase in GDP, indicating robust economic activity and growth over the past year, bolstered by consumer demand and improving supply conditions.

💡Labor market

The labor market refers to the supply of and demand for labor, where employees provide the labor and employers provide the jobs. The video highlights the labor market's relative tightness, with job creation strong and unemployment rates near historical lows, reflecting a robust labor market that is beginning to balance more effectively.

💡Federal funds rate

The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. The video notes that the Federal Reserve has maintained the target range for this rate to influence economic activity and inflation, indicating its central role in the Fed's monetary policy toolkit.

💡Price stability

Price stability means keeping inflation at a low and stable rate, allowing individuals and businesses to make financial decisions with confidence. In the video, restoring price stability is presented as essential for a sustained period of strong labor market conditions that benefit all, underscoring the Fed's commitment to its inflation target.

💡Economic outlook

The economic outlook refers to the expectations for the economy's performance in the future, including growth, inflation, and unemployment rates. The video mentions the uncertainty surrounding the economic outlook and emphasizes the importance of ongoing progress towards the inflation objective, reflecting the Fed's cautious approach to policy adjustments.

💡Policy restraint

Policy restraint refers to the measures taken by the Federal Reserve to slow down economic activity to control inflation, often by raising interest rates. The video discusses the potential future easing of policy restraint, weighing the risks of acting too soon or too late against the progress made in inflation reduction and the broader economic impact.

Highlights

The Federal Reserve remains focused on promoting maximum employment and stable prices for the American people.

While inflation remains above the FOMC's 2% objective, it has eased substantially without a significant increase in unemployment.

The FOMC is strongly committed to returning inflation to its 2% objective, as restoring price stability is essential to achieve a sustained period of strong labor market conditions.

Economic activity expanded at a strong pace in 2023, with GDP increasing by 3.1%, bolstered by solid consumer demand and improving supply conditions.

The labor market remains relatively tight, with strong job creation averaging 239,000 jobs per month since mid-2022 and an unemployment rate near historical lows at 3.7%.

Strong job creation has been accompanied by an increase in the supply of workers, particularly among individuals aged 25 to 54 and a continued strong pace of immigration.

The strong labor market has also helped to narrow long-standing disparities in employment and earnings across demographic groups.

Inflation has eased notably over the past year but remains above the Fed's 2% goal, with total PCE prices rising 2.4% and core PCE prices rising 2.8% over the 12 months ending in January.

Long-term inflation expectations appear to have remained well-anchored, as reflected by surveys and financial market measures.

The Federal Reserve has maintained the target range for the federal funds rate at 5.25% to 5.5% since July 2022, while continuing to shrink its balance sheet at a brisk pace.

The restrictive stance of monetary policy is putting downward pressure on economic activity and inflation.

The Fed believes the policy rate is likely at its peak for this tightening cycle if the economy evolves broadly as expected, and it will likely be appropriate to begin dialing back policy restraint at some point this year.

Reducing policy restraint too soon or too much could result in a reversal of progress on inflation and require even tighter policy, while reducing it too late or too little could unduly weaken economic activity and employment.

The Fed does not expect to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2%.

The Federal Reserve remains committed to bringing inflation back down to its 2% goal and keeping longer-run inflation expectations well-anchored, as restoring price stability is essential to achieving maximum employment and stable prices over the longer run.