“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
By Wolf Richter for WOLF STREET.
FOMC members voted unanimously today to cut the Fed’s five policy rates by 25 basis points, after the 50-basis point cut at the prior meeting in September:
- Federal funds rate target range to 4.50% – 4.75%.
- Interest it pays the banks on reserves: 4.65%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.55%.
- Interest it charges on overnight Repos: 4.75%.
- Primary credit rate: 4.75% (banks’ costs of borrowing at the “Discount Window”).
A 25-basis point rate cut was telegraphed by the Fed’s communications, after many folks in the first days following the monster-cut in September had expected another monster-cut, with more cuts to follow, which triggered some mighty backpedaling by various Fed speakers, including talk of “pausing” either in November or December.
The theme of continued monster-cuts changed when crucial labor market data, GDP, consumer income and spending, the savings rate, and inflation data were revised higher after the rate-cut meeting, and some data came in warmer for September, including inflation, with core CPI rising for the third month in a row, reaching 3.8% annualized, to where by mid-October the no-landing scenario reappeared.
The October jobs report was marred by the Boeing strike, triggering the temporary drop in manufacturing jobs that will bounce back when these workers return to work, and by the hurricanes that temporarily knocked out a large number of jobs in the vast areas where flooding occurred. Those jobs too will bounce back plus some during the clean-up and reconstruction period. And the Fed could see this too.
QT continues at the pace announced in May. The Fed has already shed nearly $2 trillion in assets since it started QT in July 2022. The FOMC’s Implementation Notes today said it would continue to shed assets at the current pace.
What changed in the FOMC’s statement:
The statement changed in some ways, and was left intact in other places, to indicate that upside inflation risks and downside employment risks now “are roughly in balance.” In prior statements, it was still “gaining greater confidence” these risks were moving toward that balance.
Left intact: “Recent indicators suggest that economic activity has continued to expand at a solid pace.”
New: “Since earlier in the year, labor market conditions have generally eased…”
Old: “Job gains have slowed…”
Left intact: “…and the unemployment rate has moved up but remains low.”
New: “Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.” [left out “further” perhaps to indicate that it noticed the recent upticks in month-to-month inflation].
Old: “Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated…”
New: “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
Old: “The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance…”
New: “In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent.”
Old: “In light of the progress on inflation and the balance of risks, the Committee decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.”
Left intact: “In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
It was a no-dot-plot meeting. Today was one of the four meetings a year when the Fed does not release a “Summary of Economic Projections” (SEP), which includes the infamous “dot plot” which shows how each FOMC member sees the development of future policy rates. SEP releases occur at meetings that are near the end of the quarter. The next SEP will be released on December 18 after the FOMC meeting.
The whole statement:
“Recent indicators suggest that economic activity has continued to expand at a solid pace. Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low. Inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.
In support of its goals, the Committee decided to lower the target range for the federal funds rate by 1/4 percentage point to 4-1/2 to 4-3/4 percent. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Michael S. Barr; Raphael W. Bostic; Michelle W. Bowman; Lisa D. Cook; Mary C. Daly; Beth M. Hammack; Philip N. Jefferson; Adriana D. Kugler; and Christopher J. Waller.”
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Is this really supported by the data on your opinion Wolf? I know it is what it is.
Right now, the Fed’s policy rates rates are in a pretty good place. They’re still well above the rates of inflation, core or headline, sticky or otherwise. Inflation rates have come down a LOT.
If inflation turns around solidly and keeps rising, the Fed can hike again. Rate cuts are not permanent. That came out several times at the press conference.
When Powell was asked if he could “rule out” a rate hike in 2025, he said: “I wouldn’t rule anything out that far away.”
“But that’s certainly not our plan,” he said, referring back to the SEP at the last meeting, where no rate hikes were indicated.
Then he added: “But ultimately, we’re not in a world where we can afford to rule things out a full year in advance. There’s just too much uncertainty in what we do.”
Well bless their hearts…
With a long enough timeline, everything is transitory.
I’m not Mr. Market, but this appears to be a very symmetric, balanced statement. It leaves room for the next move to be nothing or anything, depending on the data. Given the Fed’s
desire to enable banks to front-run policy changesreluctance to surprise markets, most likely the next meeting will be “no change” but with dovish or hawkish hints to guide future expectations….If Wolf is right about inflation metrics firming back up, on top of likelihood of inflationary policy changes from FedGov, the Federal Reserve may be pressured to raise rates back up fairly soon.
Then again, post-election, the Establushment may welcome that pressure, if they want to force rates up to put a leash on Congress and Trump.
Will the Bond Vigilantes return in force?
“Will the Bond Vigilantes return in force?”
Well…considering that Fed money printing and other actions (ZIRP) euthanized the “Bond Vigilantes” from 2002 to 2022 (more or less), my guess is…no (unless the Fed wants them to).
If ZIRP accomplished nothing else (beyond the huge derangement of the valuation economy of course), it showed that the Fed can more or less control interest rates (at the inescapable cost of creating horrible inflation/over-valuation).
DC thinks it has discovered fire (money printing) and it ain’t going to stop (fiscal deficit, years 51 to economic apocalypse – accumulated Fed Debt $35 trillion to infinity) until the USD based economy is incinerated.
No matter what signals the free(r) market sends, DC *always* prioritizes its agenda (see 50 years of fiscal and trade deficits) and the only tool it really has to do that (anymore) is money printing.
It may periodically attempt to tighten (2022-2024) but the preceding factors (absolute priority of DC agenda, baked-in entitlements catastrophe, etc) will inevitably force it back to loosening/printing, sooner or later.
Why do you think there was pivot talk from almost day one of tightening in 2022? Plenty of people know that the economic fundamentals of the USD economy are actually pretty god-awful (50+ years of trade deficits), a fact obscured only by the mis-valuation induced by 20 years of ZIRP.
Transition to no cut next meeting?
I can see that as a possibility. A “pause,” as they’ll call it, has already been pronounced as a possibility by several Fed governors. If inflation reports come in hotter than expected, it’s good possibility.
I’m just now listening to Powell getting bombarded with the same question.
This NYT reporter begging for rate cuts needs to be tased. Bzzt!
Wolf said: “to back pedal”
Yes Wolf, but are they backpedaling fast enough? I say no, they should be pedaling forward.
they are henchmen for an evil bunch
1. Purple tie means no future cuts
2. What is reading as he answers questions from press — is this realtime AI guiding his thinking, or are these pre-prepared questions with pre-planned scripting?
3. Does any of this matter —- we’re essentially waiting for paint to dry — and no projection for wind speed variables.
4. Inflation trends seem headed higher but will GDP revisions alter inflation outlook?
5. This can be deleted obviously but who cares?
I’m curious about Powell’s explanation for rising long bond yields: he said it was due to growth rather than inflation expectations.
I don’t really follow his logic here.
When pushed if he or any of the other governors could be fired or demoted — the second time the same question was asked — Powell said tersely: “Not permitted under the law.”
The first time he was asked, he said even more tersely: “No.”
I like the way he said it the second time, with the space between each word.
Not. Permitted. Under. The. Law.
Yes, he sure did that, LOL. You could tell from those pauses between each word that the reporter pissed him off.
I really wish he had that special reporter-Taser that I’ve been clamoring for. ZZZZAPPPP “next question.”
No doubt thinking he wished he had a double-barreled zapper, with some extra voltage!
Powell is going to be surprised when he finds out laws are only as good as the Justice Department enforcing them.
Powell will also be surprised to find that Congress makes the laws, and Congress can change the laws. Powell was really funny as he showed his ignorance, responding to the question like a three year old. He is clearly worried about his job, as I have mentioned in the past.
How many armored divisions has the Pope?
I’m sure it is just coincidence that Fed policy has more or less completely accommodated 50+ years of fiscal deficits (including driving interest rates – during the long night of ZIRP – down to zero despite accumulated Treasury deficits in the tens of trillions, well in excess of 100% of GDP).
Nobody *has to* fire their minions.
What the fuck does the Fed see that we are all missing and that is NOT in the numbers they, and the government, are reporting? This economy is strong by every metric and there is plenty of liquidity as Wolf and others have documented. The next round of inflation is going to be a monster.
Powell: We’re aiming for inflation at 2%. We’re not looking to deliberately undershoot our target to compensate.
Seemed like a logical decision by the Feds. Do I wish it remained high so the conservative portion of my portfolio stayed higher but that is the natural result of being conservative. Has I known 2024 things would go through the market I would have repositioned, but Captain Hindsight really is if no use(although a great South Park episode).
The fed are allowing inflation to harm everyone. 2% is the high of a range. Reducing rate by any amount is wrong. Foolish irresponsible fiscal decision of 6 plus $trillion debt being monetized. They are ruining people’s lives while they pretend it’s a game. The left media directs their decision by continually blasting the public with words like
“…widely expected to cut …..”
Everything is perfect and the stock market has reached a permanently high plateau. It’s a perfect day to purchase more NVDA before it blasts through 150 on the way to 200!
there are people in the other thread who actually believe that. they actually think the fundamentals are driving stock prices. lol, 205% of gdp. yeah okay.