Powell Q&A: Today was a ‘closer call’ but we decided it was the right call

December 18, 2024 at 07:38PM

We don’t think we need further cooling in the labor market to get inflation down to 2%

Labor market is quite gradually cooling

We see the inflation story as broadly on track

Job creation is below the level that would hold jobless rate consistent

Downside risks to labor market have diminished but still cooling

The actual cuts next year will be in regards to data, not anything we wrote down today

As for additional cuts, we’re going to be looking for further progress on inflation or weakness in jobs

As long as jobs and inflation are solid, we can be ‘cautious’ about cutting

I think that speaks strongly for itself. We will see what jobless claims are tomorrow and we will go from there. The baseline is strongly pointing to leaving rates unchanged in January but we get three jobs reports before the March meeting and it’s priced at roughly 50/50.

We had a year-end inflation forecast and ‘it’s kind of fallen apart’

Says that was probably biggest factor in dots

The market doesn’t like to hear the Fed chair say ‘it’s kind of fallen apart’ in any context.

It’s premature to make any conclusions about tariffs, don’t know what countries, what size, how long

We are at the stage of thinking through questions, not getting definitive answers

A drop to 2.5% core inflation next year would be ‘significant progress’

‘extent and timing’ language shows where we are at a point where we can slow the pace of cuts

We have to continue to have restrictive policy to get inflation to 2%

Also notes they need to keep a close eye on employment and keep it where it is

Housing services inflation has come down steadily

We do think the labor market is still cooling, but not in a way that really raises concerns

We need to see progress on inflation and that’s how we’re looking at it

The higher rate is lower and that’s a signal of further softening

The downside to the labor market clearly has diminished

Inflation has been ‘a little bit’ more stubborn

Geopolitical turmoil remains a risk

It’s appropriate to proceed cautiously

This article was written by Adam Button at www.forexlive.com.