The Federal Reserve has decided to keep the federal funds rate steady at 4.25% to 4.5%. This decision comes as inflation remains somewhat high, and the Committee aims to balance employment, and inflation risks while targeting maximum employment and 2% inflation in the long term.
Powell on Labor Market Conditions
Fed Chair Jerome Powell, in his speech at the FOMC press conference, emphasized that the labor market is not a significant source of inflationary pressures. He noted that while the unemployment rate has stabilized after a rise last year, the labor market remains strong for those employed. However, it has become more challenging for unemployed workers to find jobs, a consistent theme in recent months.
Economic Activity and Policy Flexibility
Powell highlighted that economic activity has continued to expand at a solid pace, with an update on the gross domestic product expected soon. He reiterated that the Fed is not on a “pre-set course” and will maintain flexibility in future policy adjustments. The Fed’s policy settings are still seen as “meaningfully restrictive,” with a focus on achieving real progress on inflation or observing some weakness in the labor market.
Confidence in Restrictive Policy
When asked about his confidence in the restrictive nature of interest rates, Powell expressed confidence, noting that inflation has gradually cooled. However, he acknowledged that the policy is less restrictive than before the rate cuts began.
Interactions with President Trump
Powell also addressed questions about his interactions with President Trump. He was firmly stating that he has had no contact with the President and considers it inappropriate to comment on Trump’s statements. He assured that the Fed’s policies align with Trump’s executive economic orders but had no further comments on the matter.
Withdrawal from the Network for Greening the Financial System
In response to the Fed’s recent decision to withdraw from the Network for Greening the Financial System, Powell explained that the group’s focus had shifted to issues beyond the Fed’s plausible mandate, such as biodiversity.
Support for Policy Pause
As usual, Powell expressed support for the Fed’s decision to pause rate adjustments, believing the economy remains strong and in a good place. He pushed back on rising inflation expectations among households and businesses, stating that the committee is waiting to see the impact of future policies enacted by the Trump administration.
Market Reactions to Powell’s Remarks
Powell’s remarks appeared to comfort investors, with the S&P 500 showing a smaller 0.4% loss for the day. Also, the 2-year Treasury yield nudging higher since his speech began.
Tech stocks, in particular, were hit hard, with Nvidia leading the decline after a report suggested potential new export restrictions on its chips.
However, treasury yield increasing slightly which indicates a cautious but stable response from the bond market.
