On November 14, 2024, Jerome Powell, the Chair of the Federal Reserve, delivered an insightful speech in Dallas, Texas, highlighting the current state of the U.S. economy and the Federal Reserve’s monetary policy. His speech covered various aspects of economic growth, labor market conditions, inflation, and the Fed’s future policy direction.
Jerome Powell’s Speech in Dallas
Economic Growth: Powell highlighted the strong performance of the U.S. economy, which has outpaced other major economies. Economic output grew by over 3% last year and continues at a 2.5% rate this year. Consumer spending is strong, driven by higher disposable income and solid household balance sheets. Business investment has accelerated, though the housing sector remains weak.
Labor Market Conditions: The labor market is solid but has cooled from overheated conditions. Job openings are slightly above the number of unemployed Americans. The rate of workers quitting jobs has decreased, and wages are increasing at a sustainable pace. Hiring has slowed, and the unemployment rate is 4.1%, higher than a year ago but stable.
Inflation: Inflation eased significantly from its peak, with the labor market no longer a major source of inflationary pressure. Total PCE prices rose 2.3% over the past year, while core PCE prices rose 2.8%. Core inflation measures have returned to rates closer to the Fed’s goals, though inflation has not fully reached the 2% target.
Monetary Policy: The Federal Open Market Committee recently lowered the policy interest rate by 1/4 percentage point. Powell expressed confidence that with appropriate policy adjustments, the economy and labor market can remain strong, with inflation moving sustainably toward 2%. The Fed is moving toward a more neutral policy setting, carefully assessing incoming data and economic outlook.
Image source: CNBC
Chair Powell’s Discussion in Dallas
Here are some key points from Federal Reserve Chair Jerome Powell’s discussion on Thursday in Dallas:
“The economy is not sending any signals that we need to be in a hurry to lower rates,” Powell stated in his prepared remarks. “The current strength of the economy allows us to make our decisions with caution.”
Chair Jerome Powell highlighted that the U.S. federal government’s budget is on an unsustainable path. He pointed out that the national debt is growing faster than the economy, which is a significant concern. Powell emphasized the need for a more sustainable fiscal approach, but the debt issue is not currently guiding Fed’s economic judgment. Powell emphasized that their decisions are based on broader economic indicators and not solely on the national debt situation.
The Federal Reserve Chair reiterated that it is too early to predict how policy changes by President-elect Donald Trump and a Republican-led Congress might impact economic activity and interest rates.
Trump plans to raise or impose new tariffs to boost domestic production, but Powell noted the difficulty in modeling the effects of these tariffs. He pointed out that the current situation differs from the 2018-19 trade war with China, as inflation was low back then, and consumers and businesses were not accustomed to significant price hikes. “We’re in a different situation,” Powell remarked.
The stock market reacted negatively to Jerome Powell’s speech because he indicated that the Federal Reserve does not need to rush to lower interest rates. Powell emphasized the current strength of the economy, which suggests that the Fed might maintain higher borrowing costs for a longer period. This cautious approach made traders concerned about the potential impact on corporate profits, leading to a sell-off in the stock market.
