FOMC Statement and Press Conference – Currency Thoughts

FOMC Statement and Press Conference

November 7, 2024

The Federal Open Market Committee, as had been expected, voted to lower the federal funds target by an additional 25 basis points to a range of 4.5-4.75%. A released statement made minimal cosmetic changes. In discussing the U.S. labor market, the prior observation that job gains have slowed now reads “labor market conditions have generally eased.” With 2% inflation essentially at hand, a phrase saying “the committee has gained greater confidence that inflation is moving sustainably toward 2%” was deleted.

The rate cut is the Fed’s second one of this cycle of interest rate reductions and follows an initial 50-basis point cut in September. The halving of the size of that move had been well telegraphed rhetorically in advance. September’s decision elicited one dissent from Michelle Bowman, who then preferred to cut the rate by 25 bps instead. She joined all her colleagues this time in voting for the 25-bp reduction just announced.

Chairman Powell in Q&A expressed optimism and confidence in how the U.S. economy has been performing vis-a-vis meeting the central bank’s dual mandates of price stability (i.e. sustained 2.0% inflation) and in where monetary policy is at currently. An important change occurred at the previous meeting in September when the Fed made its initial reduction. The policy test previously had been whether trends in inflation, inflation expectations, and factors that might affect future inflation gave officials sufficient confidence to cut rates.

Not only was that test finally met by end summer but also perceived risks of excessive inflation and deficient employment then moved into close balance. The time had come finally to recalibrate their stance toward a gradually diminishing degree of restraint. In this fresh stage, the test, so to speak, that is being asked at each meeting is to find the pace of rate reduction (whether to pause and, if not, how much to cut) of loosening the stance that best strikes a balance that avoids both risks of easing to quickly and potential dangers of not easing quickly enough. An important point along this way is that officials believe that the labor market is now loose enough to deliver the price stability goal, so they wouldn’t welcome sustained further slowdown of the labor market. By the same token, GDP continues to expand solidly, which gives them latitude against hurrying the descent to a neutral interest rate. With numerous geopolitical areas of unrest, they can afford to be methodically cautious. The lower the federal funds rate becomes, the more time will be spent on determining the appropriate level to stop cutting interest rates.

Not surprisingly, several questions posed to Chairman Powell were intended to ferret out a comment or two regarding possible fiscal plans of the incoming Trump administration and what kind of working arrangement the Fed and incoming president might strike. Equally unsurprising, Powell refused to take the bait on those inquiries.

Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

Tags: Comment on Fed Chairman’s November 2024 press conference

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