On Wednesday, September 20, after the Fed interest rate meeting, Fed Chairman Jerome Powell held a press conference. At the press conference, Powell expressed his views on the Fed's interest rate decision, the Fed's views on the US economy, interest rates, labor market and other topics, as usual, and answered reporters' questions.
At the press conference, Powell reiterated that the Fed is firmly focused on the dual mission given by Congress to maintain price and labor market stability. Powell said the FOMC is strongly committed to reducing inflation to 2 percent, meaning the Fed remains committed to that goal and has not changed.
Powell reiterated that there can be no strong job market without price stability. He said the Fed has made a lot of progress, but its full impact has yet to be felt.
Powell said the best the Fed can do for everyone is restore price stability.
The Fed will maintain restrictive interest rates, tending to ignore short-term fluctuations in energy prices
Powell made clear that the current policy stance is restrictive and inflation has eased since the middle of last year.
Powell said there is still a long way to go to reduce inflation to 2 percent, though the good news is that long-term inflation expectations remain well anchored. He said he was well aware of the significant difficulties that high inflation caused people. As inflation targets approach, the Fed has the ability to act cautiously.
Powell also said that persistently high energy prices will affect inflation expectations. However, he also stressed that energy prices are not much indicative of economic trends, and the Fed tends to ignore short-term fluctuations in energy prices. Powell realized that energy prices are very important for consumers, but the key is the persistence of high energy prices.
He said the Fed is committed to achieving and maintaining sufficiently restrictive policies to bring inflation down to 2 percent over time. The Fed will keep its restrictive interest rate until it is confident that inflation will fall to 2%. Powell said the last three inflation data were very good.
The Fed is already close to its target and will raise interest rates further this year
Powell said that given the progress the Fed has made, the FOMC decided to leave interest rates unchanged this time. However, keeping interest rates unchanged does not mean that the Fed has reached the restrictive stance sought by the institution, and the Fed has not made a decision on whether interest rates are sufficiently restrictive. The Fed wants to see convincing evidence that interest rates have reached appropriate levels. Powell said the Fed is very close to what it thinks needs to be achieved. He argues that people will only know that it exists when sufficiently restrictive policies are reached.
In the future, the FOMC will continue to make decisions on a case-by-case basis and, if appropriate, is prepared to raise interest rates further. Most policymakers believe it is more likely appropriate to raise rates again this year. Powell said the Fed's decisions would be based on data and risk assessment, that the Fed would tread carefully, and that officials wanted to be careful not to jump to any conclusions. Regarding the last two meetings of the year, Powell said that the decisions made by the Fed at these two meetings will depend on the combination of all the data.
Powell reiterated that as interest rates move closer to the appropriate policy stance, risks become more two-way and the risks of excessive tightening and excessive easing become more balanced.
Powell explained that the Fed is acting cautiously because of policy lag. The Fed still faces too much uncertainty at the moment.
He highlighted at the press conference that recent consumer spending data has been particularly strong and that the Fed does not expect to see a decrease in consumer spending.
Powell stressed that the Fed is vigilant against uncertainty. He also reminded investors that the Fed's forecast is not a plan, policy is adjusted as appropriate, and the forecast is highly uncertain.
Powell said real interest rates are now "meaningfully positive."
Powell said that about the level of the neutral rate, it will only be known when it gets there. He believes that the neutral rate may have risen, and the neutral rate may be higher than the long-term rate. The median median neutral ratio is not expected to increase currently, but people are changing their estimates.
Whether or not to cut interest rates will be based on the needs of the economy
Regarding the rate cut, Powell said that he never intended to signal the timing of any rate cut, and that the timing of the rate cut would occur in due course. He believes that part of the decision to cut rates may be that real interest rates are rising because inflation is falling. Powell again stressed that the focus of the work now is to find the level of interest rates that the Fed can maintain.
However, Powell hinted that when entering 2024, the Fed will consider both policy lag and data. The market believes that this means that the Fed's decision-making will be more cautious starting next year. He stressed that any decision on future rate cuts will be based on the needs of the economy.
The labor market remains tight and will not take a stand on strikes
Powell said the labor market remains tight, but the Fed sees a better balance. The FOMC believes that the rebalancing of the labor market will continue, with labor demand still outstripping supply. The unemployment rate remained low at 3.8 percent. Powell said he still believes the labor market needs to slow down.
However, nominal wage growth is showing some signs of slowing, and the probability of a "wage-inflation spiral" that the market fears has further decreased. Powell stressed that the biggest wage increases were in low-income jobs. He spends, and according to most indicators, real wages are now positive.
Powell said it was a good thing that there had been a substantial rebalancing in the labor market while unemployment had not increased significantly.
In the median projection, Powell did not expect the unemployment rate to rise significantly, but stressed that it was not a guarantee.
In addition, Powell believes that the natural unemployment rate is declining.
Regarding the current strike of American auto workers, Powell said that the FOMC will not comment on it. However, he noted that regarding the UAW strike, the duration of the strike will affect output, employment and inflation.
The U.S. economy is stronger than expected, and a soft landing is the Fed's primary goal
Powell said U.S. economic activity was stronger than everyone expected, and strong economic activity was the main reason for the need for more rate hikes. There are many possible explanations for GDP being stronger than expected. Currently, U.S. household and business balance sheets are stronger than expected.
He noted that real U.S. GDP growth has exceeded expectations, U.S. economic activity has been growing at a solid pace, and GDP growth has been driven by strong consumer spending. Powell said that economic growth is stronger than expected and higher interest rates are needed.
Housing market activity has picked up, and housing supply is structurally constrained. The Fed has observed the impact of a gradual slowdown in housing services inflation on rents.
Powell stressed that the U.S. economy still seems to have a clear strong momentum, a soft landing is the primary goal of the FOMC, and the Fed does not want to weaken the possibility of a soft landing. Still, the Fed will not view a soft landing as a base expectation. Powell believes that the U.S. economy has a viable path to a soft landing.
Powell argues that economic growth is not the Fed's mission, and the question will be whether economic growth really poses a threat to the ability to achieve 2% inflation. But he also acknowledged that surveys show people are unhappy with the U.S. economy. He also realized that when the Fed raises interest rates, people who borrow for a living feel it more strongly.
Powell said a recession due to higher interest rates was "always a concern." It's good that the economy remains stable in the event of a rate hike, but if the economy performs stronger than expected, it means the Fed will have to do more to reduce inflation.
He sees strikes, government shutdowns, the resumption of student loan repayments and rising long-term interest rates as risks. Powell believes that government shutdowns usually have little macroeconomic impact. Powell said the FOMC would not comment on the shutdown, but it could delay some of the data the Fed needs, which the Fed must deal with.
Market reaction
All three major U.S. stock indexes fell, with the S&P 500 down 0.66%, the NASDAQ down 1.14%, and the Nasdaq 100 down 1.1% — the lowest intraday since August 28. The offshore yuan was flat against the dollar, tentatively trading at 7.3039 yuan, and the two-year U.S. Treasury yield rose 4.3 basis points to 5.133%, remaining near the highest level since 2006 at 5.1480% since the resolution statement; Spot gold rose 0.34% to $1938 an ounce, having risen to $1947.47 before the resolution statement.
Capital Economics Paul Ashworth reported that the Fed wants the market to believe that "higher rates will last longer" and that officials have had to sharply raise their economic forecasts to justify rate hikes in the coming years. The bank is skeptical that economic growth over the next 12 months will approach levels that strong, with a more likely outcome of a mild recession or close to recession.
The "new debt king" Gundlach believes that the current economic data is extremely unreliable and there are many cross-cutting factors in the economy. As oil prices rise, the likelihood of future rate hikes is higher, and oil prices are a headwind to the Fed's rate cuts.
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