Powell speech: We are prepared to adjust policy as appropriate
Federal Reserve Chairman Jerome Powell explains the decision to leave the policy rate, federal funds rate, unchanged at the range of 5.25%-5.5% and responds to questions in the post-meeting press conference.
Key quotes
"I like to look at 3 and 6 month series on payrolls report given differences in establishment and household survey."
"Overall picture is one of strong and gradually cooling labor market."
"It has given us an ambiguous result, but fact remains labor market is strong."
"No longer the super heated labor market of a few years ago."
"The big thing that change rate path forecasts was inflation."
"We had a pause in progress in inflation in first quarter, the takeaway was that it will take longer to get to rate cuts."
"We have to let the data light the way."
"Today was a better inflation report than almost anyone expected."
"Long-run neutral rate of interest is theoretical."
"People are coming to the view that rates are less likely to go back down to pre-pandemic levels."
"We are making policy with the economy we have and distortions we have."
"Policy is restrictive."
"The question of whether it's restrictive enough will be answered over time."
"Evidence is pretty clear though that policy is currently restrictive and having impact we hoped for."
"We are prepared to adjust policy as appropriate."
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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