Following the announcement that interest rates remain the same, Fed Chairman Jerome Powell reads his speech in the air and answers questions from reporters.
Here is an important excerpt from Powell’s critical speech:
- The economy is in a solid form.
- Inflation has dropped significantly.
- Inflation is slightly above the 2% target level.
- The labour market has reached or is approaching its largest employment.
- The risk of rising unemployment and inflation is increasing.
- Anomalous fluctuations in trade make measuring GDP more complicated.
- Wage growth continued to slow.
- The labor market situation remains strong.
- Horizontal inflation expectations are rising. The labour market is not a major source of significant inflationary pressures.
- Study participants indicated that tariffs are the main drivers of inflation expectations.
- Long-term inflation expectations are consistent with the goals.
- The government is making major policy changes.
- Tariffs have been much higher than expected so far. As the announced large increases in tariffs continue, there will be higher inflation and lower employment.
- Avoiding sustained inflation depends on the size of the tariff, its timing, and inflation expectations.
- The inflationary effect of policy may be short-lived.
- For now, the Fed is ready to wait for the situation to become more clear.
- Our aim is to keep inflation expectations tightly controlled.
- If there is a conflict between these two goals, the distance between the goal and the time required to fill the gap must be taken into consideration.
- I don’t think we should hurry to change interest rates.
- Our policy is moderately limited.
- Currently, inflation rates are just over 2%, and the data on residential and non-residential services is not bad either.
- The waiting costs are very low.
- For now, the decision to wait seems pretty clear. As the event unfolds, you can act quickly as needed.
- If we see higher inflation and higher unemployment, we will not make any more progress towards our target. Next year, we will be delayed in achieving our goals.
- It is not possible to immediately determine whether inflation or unemployment is more important.
- In some cases, lowering interest rates this year may be appropriate, but in other cases it may not be appropriate.
- You can’t confidently say you know the path to proper interest rates.
- President Trump’s demand for rate reductions will never affect our work.
The market has been unstable since the last meeting of the FOMC (Federal Open Market Committee) on March 19th. The stock market crash on Independence Day, subsequent bond market crisis, short-term tariff breaks and subsequent stock market recovery caused a sharp decline in investor sentiment, but the labor market strengthening and basic economic data attracted attention. In the shadow of these developments, US President Donald Trump has also repeated calls for interest rate cuts.
Gold prices have been strong since March, but stocks are generally unstable. Bond yields have risen, but crude oil prices have fallen sharply.
The market is increasingly hoping to cut interest rates three times this year, given the hopes of two cuts before the previous meeting.
However, the Fed not only stabilized interest rates, but raised concerns about the possibility of bulls by stating that the risks are increasing that both inflation and unemployment could rise in the economy. “The risk of high unemployment and high inflation is increasing,” the statement said.
*This is not investment advice.