Fed chairman Jerome Powell discussed the factors that would drive the central bank's rate-setting monetary policy committee to lower interest rates in September. The Federal Reserve decided to keep interest rates unchanged today, with two members dissenting for the first time since 1993. The central bank had taken rates to a record high in 2022 after the inflationary effects of stimulus spending during the pandemic and the Russian invasion of Ukraine. During his press conference after the bank's decision, Chair Powell explained that the economy was not behaving as it would have if policy rates were restrictive and added that more data about the labor market would determine September's rate cut decision.
Fed Chairman Points To "Two Full Rounds" Of Data Before Monetary Policy Committee Decides To Cut Interest Rates In September
As part of his prepared remarks, Chair Powell outlined that despite uncertainty, the economy appeared to be "in a solid position". "The unemployment rate remains low and the labor market is at or near maximum employment," he said and added that "inflation has been running somewhat above our 2% longer run objective."
As a result, Powell outlined that the Fed believes that " the current stance of monetary leaves us well positioned to respond in a timely way to respond to economic development." Commenting further on economic activity, he shared that recent "indicators suggest that growth in economic activity has moderated. GDP rose at a 1.2% in the first half of this year, down from 2.5% last year." Powell added that while growth in the second quarter was strong, the Fed relies on GDP growth data for the first half in order to smooth out fluctuations.
Responding to a question about whether the Fed would cut interest rates in September, the Fed Chair described the current monetary policy "as modestly restrictive." He noted that while "inflation is running a bit above 2%," despite potential impact from tariffs, "the labor market is solid" as characterized by "historically low unemployment."
"Financial conditions are accommodative," outlined Powell as he commented that "the economy is not performing as a restrictive policy were holding it back inappropriately." As a result, the monetary policy committee has reason to believe that the US economy "is not performing as a restrictive policy is holding it back inappropriately and modestly restrictive policy seems appropriate," said the Fed Chair.
However, Powell did note that the current interest rates could create future turmoil in the labor market. Subsequently, he stressed the need to monitor "a good amount of data" over the coming months to "help inform our assessment about the balance of risks and the appropriate setting of the Federal Funds rate."
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