On November 7, 2024, Federal Reserve Chair Jerome Powell announced a 0.25% cut in the federal funds rate, bringing it to a range of 4.5%-4.75%. Powell cited continued economic strength, easing inflation now at 2.1%, and a cooling but still-solid labor market as reasons for the move. He emphasized the Fed’s commitment to balancing maximum employment with stable prices, while maintaining flexibility for future rate adjustments based on incoming data. Powell’s remarks highlighted that further reductions or cautious policy shifts would depend on economic and inflationary trends
Interest Rate Cut
Chair Powell stated that the FOMC has taken another step in reducing the degree of policy restraint by lowering the policy interest rate by 0.25 percentage points. He expressed confidence that with this appropriate recalibration of their policy stance, the strength in the economy and labor market can be maintained, and inflation can be moved sustainably down to the 2 percent target.
Additionally, the FOMC decided to continue reducing their securities holdings. He indicated that more details about monetary policy would follow a brief review of economic developments.
Economic Growth
Jerome Powell said that recent indicators highlight that economic activity has continued to expand at a solid pace. The GDP rose at an annual rate of 2.8 percent in the third quarter, maintaining the same pace as the second quarter. Consumer spending has shown resilience, and investment in equipment and intangibles has strengthened.
He mentioned in his press conference that activity in the housing sector has been weak. This reflects the impact of higher mortgage rates and other factors that have subdued the housing market’s performance.
Overall, improving supply conditions have bolstered the strong performance of the U.S. economy over the past year.
Labor Market
Chair Powell stated that labor market conditions remain solid, despite payroll job gains slowing to an average of 104,000 per month over the past three months. This figure would have been higher if not for the effects of labor strikes and hurricanes in October. Powell extended sympathies to those affected by these storms.
The unemployment rate has risen compared to a year ago but has decreased over the past three months, remaining low at 4.1 percent in October. Chair Powell mentioned that conditions in the labor market remain solid, reflecting stability despite some earlier cooling from its overheated state.
Nominal wage growth has eased over the past year, and the gap between jobs and available workers has narrowed.
Overall, indicators suggest the labor market is now less tight than it was before the pandemic in 2019. Importantly, the labor market is not currently a significant source of inflationary pressures.
Inflation
Chair Powell noted that inflation has significantly decreased over the past two years. Total Personal Consumption Expenditures (PCE) prices increased by 2.1 percent over the 12 months ending in September.
Core inflation, which excludes volatile food and energy prices, rose by 2.7 percent. Although inflation is now much closer to the Federal Reserve’s 2 percent long-term goal, core inflation remains somewhat elevated.
He noted that long-term inflation expectations appear to remain well anchored. This indicates that both households and businesses believe inflation will stay close to the Fed’s 2% target over the long term, which is crucial for maintaining economic stability and confidence.
Monetary Policy
Chair Powell emphasized that as the economy evolves, the Federal Reserve’s monetary policy will adjust to best promote their goals of maximum employment and price stability. If the economy remains robust and inflation does not move towards the 2 percent target sustainably, the Fed can dial back policy restraint more gradually. Conversely, if the labor market weakens unexpectedly or inflation decreases faster than anticipated, the Fed can respond more swiftly. Powell assured that the policy is well positioned to handle the risks and uncertainties in achieving both sides of their dual mandate.
Chair Powell stated that the Federal Reserve is on the path toward a more neutral stance in its monetary policy. This means they are adjusting their policy to neither overly stimulate nor overly restrain the economy, aiming for a balanced approach that supports sustainable growth and stable prices.
Election Impacts
Fed Chair Jerome Powell did indeed address the potential impact of Donald Trump’s election victory on monetary policy. He emphasized that in the near term, the election would not directly influence policy decisions. However, he acknowledged that any administration’s policies could have economic effects over time, which would be considered in the Fed’s models.
Powell also firmly dismissed any speculation about his resignation, stating that the president cannot legally fire the Fed chair. He reiterated the importance of the Fed’s independence from political influence.
