As was viewed by many as likely, the FOMC cut its target rate by another 25 basis points in the wake of the election results and the very large positive market response to the election. There was nothing particularly noteworthy in the press release announcing the decision. It cited solid economic activity, some easing in labor markets, a low unemployment rate, and progress on inflation towards its two percent goal. Somewhat curiously, with PCE inflation at 2.1%, the statement noted that inflation was somewhat elevated. But that is not what Powell indicated in the press conference. He noted that progress had been made and inflation expectations were well-anchored at 2% for now.
The press conference itself focused on where the economy is, and the questions from the press largely tiptoed around the election and its implications. For example, a couple of questions had to do with whether the FOMC was concerned about possible deficits that might be associated with certain policies or whether the rise in interest rates the last couple of days was in response to market expectations about deficits. Powell responded abruptly that those issues were not discussed at the meeting and that it would be some time before we would know anything about policies. Most importantly, he would refrain from any comments on fiscal policy.
The main takeaway from the press conference was that the FOMC viewed the economy as being on track to achieving its inflation and employment goals and that both the economy was firm and labor markets were in good shape. He noted that real wages were moving up on track with productivity and those increases were not causing inflation. He went on to note that should productivity move back to its historical trend, this might cause a reassessment of where policy, in terms of interest rates, might end up to be consistent with potential for the economy and the Fed’s inflation goals.
At the same time, in response to some questions about “why move now,” he said that policy was still restrictive and current policy was working. In response to questions about whether the Committee still planned four cuts in 2025, Powell was noncommittal, as he was in responding to a question about what would cause the FOMC to pause. He also stated that new SEPs had not been prepared and future moves would depend upon incoming data.
Toward the end of the press conference, the tiptoeing around the election came to an abrupt stop when an attendee asked, if President Trump requested that he resign, would he do so? Powell responded with one word: “No.” A couple of minutes later, a press representative asked a clarifying question as to whether the president had the authority to force his removal. Powell responded that removal was not permitted by law. So we are left with the possibility of an interesting dialog between the President, Chairman Powell, and the Fed more broadly. In the meanwhile, the Fed cut rates and is viewed as on track to a soft landing, provided the path is not disrupted by policy changes next year.
Robert Eisenbeis, Ph.D.
Vice Chairman & Chief Monetary Economist
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