Fed Chair Jerome Powell said he doesn’t expect anyone’s main expectation to be an interest rate increase going forward.
“I don’t think that a rate hike ... is anybody’s base case at this point,” Powell said. “I’m not hearing that.”
Federal Reserve Chairman Jerome Powell said U.S. central bank interest rate policy is well positioned to respond to what lies ahead for the economy, declining to provide guidance whether another interest rate cut lies in the near future.
"I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value and we are well positioned to wait to see how the economy evolves," Powell said. He added, "monetary policy is not on a preset course, and we will make our decisions on a meeting by meeting basis."
Powell says that available data show that the outlook for employment and inflation have not changed much since the last meeting. He nods to the disruption of data due to the federal shutdown.
Powell emphasizes that the decision about upcoming Treasuries purchases is solely related to the purpose of maintaining “ample” bank reserves in the system.
“Consumer spending appears to have remained solid, and business-fixed investment has continued to expand,” but housing remains “weak,” Powell says.
The Fed chair repeats that some of the slowdown in hiring is due to slower labor force growth but says lower demand is also playing a role. He emphasized the risk of lower demand a lot after the previous rate cut as well.
Powell says inflation has eased but remains “somewhat elevated” compared to the Fed’s 2% longer-run goal.
Powell notes that “very little” data on inflation has been released since policymakers last met in October.
There is no risk-free path for policy, Powell says, repeating a comment he’s used repeatedly in recent months.
The Fed is now “within a range of plausible estimates of neutral, and leave us well-positioned to determine the extent and timing of additional adjustments” to rates, Powell says.
That’s another sign that the Fed may be looking to pause rates here -- Powell’s comment about now being within range of “plausible” calculations of a neutral setting.
Powell says that, purchases of Treasuries may remain “elevated” for a few months before decelerating thereafter.
Powell says the committee decided to initiate purchases of shorter-term Treasury securities -- mainly Treasury bills -- for the sole purpose of maintaining an ample supply of reserves over time.
The fact that the Fed is kicking off the Treasuries purchases right away and expects “elevated” buying for a while suggests officials really did get concerned about a liquidity squeeze.
Powell again says the Fed is now within a “broad range” of estimates of a neutral policy setting and will now await economic developments. Again, this sounds like a pause -- pending further indicators. Trump and his aides won’t be happy.
AI spending has been “holding up business investment,” Powell notes.
Powell offered a good lesson in how the Fed’s monetary policy stance filters through into the financial markets -- and the difference between the central bank’s administered rates versus day-to-day intervention in money markets.
Powell says overall the baseline expectation for next year at the Fed is to see a pick-up in growth from today’s “relatively low level of 1.7%.”
Some of next year’s upgrade to growth just represents a shift of expansion that would have been recorded in 2025 if not for the federal government shutdown, Powell said. About 0.2 percentage point of growth likely shifted from 2025 to 2026, he said.
Powell’s comments on solid growth next year are taking a bit of life out of the rally in US rates (and weakness in the dollar). The two-year Treasury yield is now down only three basis points and the greenback is paring losses.
“We’re well positioned to wait and see” where the economy evolves from here, after today’s move, Powell says.
Powell says there will be a “great deal of data” between now and the January meeting. The data, he adds, will factor into their thinking.
Powell says officials are “well positioned” to wait and see how the economy evolves from here. This is language to suggest a hold on rates. But again, we’ll be getting a substantial amount of data starting next week that could potentially clear up some of the uncertainty.
When asked if the broader sense of dissent among Fed presidents raises the bar for further rate cuts, Powell said the backdrop here is that there are risks both to inflation and to the job market. And differences of view turn on where the bigger risk is seen. This is what you would expect in such a situation, he says. The discussions are thoughtful and respectful, he says.
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