WASHINGTON听–听The听贵别诲eral Reserve held interest听谤补迟别蝉听steady on Wednesday and pushed out the start of rate听肠耻迟s to perhaps as late as December as policymakers sketched out their view of an economy that remains virtually听耻苍肠丑补苍驳别诲听across its major dimensions for years to come.
With growth and unemployment lodged at levels better than the聽US central bank considers sustainable in the long run,听贵别诲聽Chair Jerome Powell said聽policymakers were聽content to leave听谤补迟别蝉听where they are until the economy sends a clear signal that something else is needed – through either a more convincing decline in price pressures or a jump in the unemployment rate.
So far, Mr. Powell noted in a press conference after the end of a two-day policy meeting,聽颈苍蹿濒补迟颈辞苍听had fallen without a major blow to the economy, and he said there was no reason to think that can’t go on.
“These dynamics can continue as long as they continue,” Mr. Powell said. “We’ve got a good strong labor market. We think we’ve been making听辫谤辞驳谤别蝉蝉听toward the price stability goal. We’re asking … is our policy stance about right? And we think yes, it’s about right.”
The result is the听贵别诲聽accepting a slow expected decline in聽颈苍蹿濒补迟颈辞苍听back towards聽its聽2% target, with聽the central bank’s preferred聽颈苍蹿濒补迟颈辞苍听measure – the personal consumption expenditures (PCE) price index聽– virtually听耻苍肠丑补苍驳别诲听at the end of this year from its current level and聽the number聽of rate听肠耻迟s held to a single quarter-percentage-point reduction.
Those rate 谤别诲耻肠迟颈辞苍蝉听are projected to聽gather pace next year, with Powell deferring on the timing.
“We don’t make decisions about future meetings until we get there,” he said. “Really, it’s going to be not just the聽颈苍蹿濒补迟颈辞苍听readings. It’s going to be the totality of the data, what’s happening in the labor market, what’s happening with the balance of risks, what’s happening with the forecasts, what’s happening with growth. You’re looking at all of that.”
滨苍蹿濒补迟颈辞苍听诲补迟补听published hours before the release of the policy statement and聽聽showed the聽聽(CPI) rose not at all on a month-to-month basis in May,聽causing聽some analysts to argue聽the latest聽projections were already “stale.”
Mr. Powell’s characterization of the聽颈苍蹿濒补迟颈辞苍听projections as “kind of conservative” indicated the听贵别诲聽chief was “keeping the door very much open to a September听肠耻迟” if聽颈苍蹿濒补迟颈辞苍听continues to weaken, said Krishna Guha, vice chairman of Evercore ISI.
Investors in contracts tied to the聽Fed‘s benchmark interest rate聽largely kept bets intact that the central bank would approve quarter-percentage-point聽谤别诲耻肠迟颈辞苍蝉听in September聽and December.
Mr. Powell himself said the decision about the rate path was a “close call” for many policymakers, and that to some degree the听贵别诲聽had merely traded an earlier start to rate reductions this year by tacking an additional anticipated听肠耻迟聽onto 2025.
Still, he called the decision to start policy easing “consequential,” and the drop in expectations for this year completes a broad swing in sentiment from just six months ago when policymakers in their December 2023聽forecasts听别苍惫颈蝉颈oned an imminent kickoff to three years of steady rate reductions.
Under the current projections, absent a surprise in upcoming聽颈苍蹿濒补迟颈辞苍听or jobs data, the听肠耻迟s would likely not begin until December, moving the听贵别诲‘s decision out of the Nov. 5 US presidential election cycle.
HIGHER NEUTRAL RATE
The policy statement issued聽on Wednesday聽combined an acknowledgement of “modest further听辫谤辞驳谤别蝉蝉” on聽颈苍蹿濒补迟颈辞苍听in recent months with a restatement of language that rate reductions won’t be appropriate until officials have “gained greater confidence” that price pressures will continue to ease.
罢丑别听PCE price index聽increased at a 2.7% annual rate in April; the median projected by policymakers for the end of the year is 2.6%, with a full return to聽the 2%聽target in 2026.
The weak聽聽number for May was “辞苍濒测听辞苍别听reading,” Powell said.聽“When we are (more confident), then we can look at loosening policy.”
The S&P 500 and Nasdaq Composite stock indices closed sharply higher on the day, while the US dollar and yields on US Treasuries fell.
“The market cares more than the economy does about whether there are two听肠耻迟s this year or聽辞苍濒测听one,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The听贵别诲聽is basically rearranging the rate-肠耻迟听deck chairs” from听2024听to 2025.
The new听贵别诲聽projections show the economy is still expected to grow at a slightly above-trend 2.1% this year听诲别蝉辫颈迟别听a sluggish first quarter, and the unemployment rate will remain at its current 4% through the year.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have remained strong, and the unemployment rate has remained low,” the听贵别诲聽said in its statement, which was approved unanimously.
Along with trimming the number of rate听肠耻迟s expected this year, the new rate projections raised the long-run “neutral” rate needed to keep聽颈苍蹿濒补迟颈辞苍听in check while maintaining steady growth to 2.8% from 2.6%.
The long-run rate has now moved up more than a quarter of percentage point over the听贵别诲‘s last two sets of projections, a possible sign officials feel聽颈苍蹿濒补迟颈辞苍听will be harder to tame in the future.
Mr. Powell said the increase in the long-run rate did not necessarily influence officials’ short-run projections for the benchmark interest rate, but noted they were still mulling just how restrictive monetary policy had become.
The听贵别诲聽raised听谤补迟别蝉听aggressively in 2022 and 2023 to curb聽颈苍蹿濒补迟颈辞苍听that had surged to a 40-year high in the aftermath of the COVID-19 pandemic.
“We’re making policy with the economy that we have, with the distortions that we have,” Mr. Powell said. “The question of how restrictive this policy has become is聽辞苍别听that everyone‘s asking … I think the evidence is pretty clear. This policy is restrictive and is having the effect we would hope for.” – Reuters
