QT Continues at the slower pace announced in March.
By Wolf Richter for WOLF STREET.
The FOMC voted unanimously today to keep the Fed’s policy rates unchanged for the third meeting in a row, after cutting its policy rates by 100 basis points in 2024. Rate cuts remained in the fog of the future, as the Fed’s policy focus has shifted to both, inflation that has become persistent and that the Fed worries could accelerate, and the labor market that has remained solid but could weaken.
It kept its five policy rates at:
- Target range for the federal funds rate: 4.25-4.50%.
- Interest it pays the banks on reserves: 4.40%.
- Interest it pays on overnight Reverse Repos (ON RRPs): 4.25%
- Interest it charges on overnight Repos: 4.50%.
- Interest it charges banks to borrow at the “Discount Window”: 4.50%.
What changed in the FOMC’s statement:
New: “Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace.”
This was in reference of the dip in GDP caused by the historic spike in imports, even as business investment was strong, and consumer spending was OK.
Old: “Recent indicators suggest that economic activity has continued to expand at a solid pace.”
New: “Uncertainty about the economic outlook has increased further.”
Note: “increased further.”
Old: “Uncertainty around the economic outlook has increased.”
New: “The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
Old: “The Committee is attentive to the risks to both sides of its dual mandate.”
So risks, both of higher inflation and higher unemployment.
In addition, the statement deleted the technical section about the reduction of the pace of QT that had been in the March statement.
QT continues at the slower pace announced in March, the FOMC said in the statement. The Fed has already shed $2.26 trillion in assets since it started QT in July 2022. At the March meeting it announced that it would slow the pace of the Treasury run-off to $5 billion a month, but would let the MBS continue to run off as before without limit, whatever comes off, comes off, largely dependent on the pace at which the underlying mortgages are paid off or are paid down. Over the past few months, the run-off has been between $15 billion and $17 billion a month.
No-dot-plot meeting. This meeting was one of the four a year when the FOMC does not release a “Summary of Economic Projections” (SEP), which includes the “dot plot” which shows how each FOMC member that day 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 June 18 after the meeting.
In the last SEP, released after the March meeting, FOMC members saw core PCE and headline PCE inflation rates running slightly higher at the end of 2025 – at 2.8% and 2.7% respectively – than they were at the time of the March meeting, thereby seeing an acceleration of inflation in 2025. By that time, the focus had already shifted from the labor market, that has remained solid, to inflation, that proved to be stubborn.
In terms of rate cut projections in the March SEP: 4 of the 19 members saw no rate cuts at all in 2025, and 4 saw only one cut, while 9 saw two cuts, and 2 saw three cuts in 2025. So the “median projection” was two cuts. But if one of the 9 two-cutters shifts to just one cut by the June meeting, and all others stick to their stories, the median projection shifts to just one cut in 2025.
It’s this combination of a relatively solid labor market and increased inflation worries this year that has caused the Fed to pivot back to wait-and-see.
The whole statement:
Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has increased further. The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.
In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 percent. In considering the extent and timing of 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; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Neel Kashkari; Adriana D. Kugler; Alberto G. Musalem; and Christopher J. Waller. Neel Kashkari voted as an alternate member at this meeting.
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Sensible. Which means….Countdown to Trump admin complaining in 3, 2,…
Trump’s business sense is better than most of his other instincts. Remember, he was a businessman, a developer, before he entered politics. He understands the intersection of business and politics, having dealt with the municipal government of New York many times in his day…
So what are you saying? That he’s not gonna bitch about interest rates? Because I feel like he already has started
LOL! Trump is a trust fund baby who has used real estate laws to his full advantage. He is a horrible “businessman” and has bankrupted numerous companies. Perhaps appropriate in light of America’s fiscal situation…
The propaganda is staggering, even more staggering, is the number of intelligent people who believe the propaganda. It’s clear to me that The Fed and Trump are working together, despite the kabuki theater. Risk is being repriced, everywhere, and there isn’t a damn thing The Fed or Trump, can do about it.
Hedge accordingly.
these are the same trans………..atory people that wouldnt through warter on the inflation fire when it started so they have no credibility
Again, I don’t disagree with them but again, they shouldn’t have lowered rates in September either
They shouldn’t have cut them at all – not once, twice or three times. Data was never consistent and clear that inflation was at bay, as readers of this website would know.
Yes, we are now more than 4 years running with inflation above the Fed’s target of 2% with no return to 2% in sight, they should have simply held rates where they were until the target was reached, it’s not rocket science.
Shots fired Pow Pow….let’s see what the King will say next…will he take Bessent’s advice and continue with more breathing room tone or back to impulsive attack and pressure to lower….Personally I am happy
If only I can bet on this on Polymarket…speaking of which…
Powell: “uncertainty is extremely elevated.”
“I’m covering my ass for lowering rates too soon last year”
Hahaha. Good translation
Google lost $200 Billion in “value” today after some Apple exec said something. But Nvidia gained $100 Billion in the last 3 mins. In the indexes all uncertainty was evened out.
This is all about AI replacing search engines and publishers. We went from search and click (to a Wolf Street article), to no-click search (where Google quotes Wolf Street in an excerpt with a link to Wolf Street, but few people click on the link), to AI stealing Wolf Street’s content and presenting it as its own content without providing a link. So now Apple is going to use its own AI, rather than Google’s.
The innovation here is that you can steal someone’s content and get away with it and make billions doing it.
You shouldn’t have said it, Wolf. Now AI knows you’re onto them/it. I wouldn’t be getting into any of these Google robot-cars driving around in SF.
” – Open the pod-bay doors, HAL.
– I’m sorry, Dave. I’m afraid I can’t do that.”
Knee jerk reaction to Apple’s comments about “AI” replacing Search. Here are a few important considerations why Google might lose some gross margin but not it’s leadership:
1. Search is AI. Search, or Information Retrieval as we knew it in grad school in late 80s, has always been at the forefront of using AI technologies (often referred to as NLP — natural language processing before the all encompassing marketing term “AI” subsumed it).
2. Search dealt with massive, ever growing text (structured and unstructured), massive demand, high performance expectations (quick and accurate). Probably more than most any other “AI” application today does
3. Google cracked Search scale in early 2000s with home grown innovations. Google invested in “AI” to power it’s Search as well as in Scale. That combination to it’s product success as well as it’s gross margins.
4. Remember that other massively capitalized companies such as Microsoft and Apple tried but failed because they couldn’t match that combination. The core search tech and even core infrastructure tech was known (Google published several papers that resulted in poor copycats such as Hadoop), but nobody could execute effectively at that scale for profit
5. Remember Google has a strong AI team. They missed the boat on initial LLM applications, but they have been busy catching up last couple years
6. Google executes a Search query at a very low price point. But the same query thrown at a LLM (what ppl call “AI”) currently costs orders of magnitude more
7. The key to success with “AI powered Search” is the same as it was for Search — lots of content/data, world class technology, deep understanding of Search, world class infrastructure.
8. Ppl should do their work to determine who can pull this off better than Google. Certainly not Apple. It’s a great consumer devices company, but there’s a reason it’s not powering Search on its devices.
Maybe they will listen to the direction of used car prices now!
Funny, I have an allocation to GOOG and NVDA, buying back in on the recent dip. But I missed the trade of the year, which was to hold VIXY on “Liberation Day.” Now I hold some of that, a side bet on Trump doing (or merely saying) something outsizedly foolish.
NVDA is a stock in a stage 4 decline. It is going to hit $75. Best to use this rally to get out.
You’re welcome.
Also they could have done this entire thing over Teams lol
Yeah, but it wouldn’t be nearly as fun waiting for Powell to pull out his special Taser when a reporter asks a stupid, leading, or repetitive questions, and ZZZZZAPPPPH. “Next question!”
Truth Social tantrum in 3,2,1….
I’ve called park city home since 2009 :) :) :) it was great place to raise a family and to ski!
Lucky Bast*rd!!
Manheim used vehicle index up 2.7% from March and up 4.9% year over year. Price increases coming on new 2026 models. Probably also a decrease in some model availability further limiting supply. I’ve already seen some price increases on parts for an BMW I am restoring.
Ive been told from 2021-2024 that all price increases were corporate greed
Idontneedmuch
LOL, I have been yelling about surging used vehicle prices since AUGUST, in numerous articles here, and some stupid reporter woke up today and blames the tariffs? Do you not ever read any articles here???
And where were these effing morons in 2021 and 2022 when Bidens stupid free-money giveaways caused used vehicle prices to spike by 55%. These reporters are a joke.
RETAIL PRICES: Used vehicle CPI through March, from my CPI article here weeks ago — doesn’t even include April yet:
WHOLESALE PRICES: The Manheim index you mentioned. It started rising in AUGUST, did you not ever read any of many articles about this here????
Where were you when Biden’s idiotic free-money giveaways caused the Manheim index to spike by 60%????
Price increases only mean “special financing”, like lower rates and longer term.
“So, you like the truck at $126,000?. I can get you 2.9% for 120 months!”
Even at a ten year term at 2.9% a $126K truck has a monthly payment of over $1,200 (before insurance and registration that will be expensive on a $100K+ truck). The new Hagerty insurance magazine just had an article about how there is a shortage in people who can fix both old classic cars and newer high tech cars so expect higher repair and maint. costs going forward (since the schools have been telling everyone that they need to borrow monye nd co to college)
AI, what really happens is the buyer trades in his year old Tesla Model Y (fully equipped) that he paid $50 K for and gets $26 K for it making the new loan $100 K for ten years, cutting the payment to roughly $1,000/month. Good deal!
But the buyer also rolls in the loan balance of the old Tesla into the loan for the new truck making the new loan over 126k
Oh, I am well aware that used car pricing has been increasing since last summer. I follow all of your articles plus I receive market emails from Cox and Carbly. Anecdotally, I can tell you that people were trying to front run price increases in March and April. Mercedes has confirmed that increases in costs due to tariffs will be priced into 26’s. So, better buy now? My point was that I don’t see car pricing coming down unless there are some major changes to policy.
It’s weird how Jay isn’t talking about the revisions in inflation and he keep leaning on the most recent YOY core PCE numbers that may change to the upside. It’s like he is jawboning with a dovish tone or walking on eggshells that inflation is only “slightly above”. Wow Fox business gives a hardball question about no cuts this year! Respect. To a network that has been a talking point for the White House.
“Powell was dovish” has been the loudly screamed mantra ever since the Fed started hiking rates in March 2022 🤣
Powell made a Freudian slip on saying “ Rate hikes” excuse me rate cuts
Yes, that was …. funny?
Powell: “…what I would say is that we think our policy rate is in a good place. We think it leaves us well positioned to respond in a timely way to potential developments. That’s where we are. And that depending on the way things play out, that could include rate hikes — sorry, rate cuts.”
Powell about Congress and the debt: “I think they don’t need my advice and our advice on how to do fiscal policy, any more than we need their advice on monetary policy.”
He should have included “The President” along with “Congress” re advice on monetary policy
Don’t see how the tariff situation is necessarily resolved that leads to a lot of long term investments in the US. While we never hold the next President accountable for the previous presidents commitments, which is bad enough, Trump signed a trade agreement in first term and only to rip it up in the 2nd term. Consistent policies and somewhat predictable futures are necessary and none of that exists. That doesn’t mean capital won’t say all the correct things during auto commercials but that is advertising to a country trying to hold onto a past.
The long-term investments are already happening on a huge scale, it just takes years to go from planning to production reality:
Gee, was that investment in manufacturing during the Biden administration?
Like I said, building factories, from decision to production, takes years. Trump 1 tariffs were fully implemented and final in late 2018. so the corporate planning started. But not the spending on factory construction yet, because planning takes a while, then they have to find the land, negotiate with local authorities, etc., before they can even start construction, and then Covid shut all of this down in 2020. But in mid-2021, spending on factory construction took off.
Biden’s CHIPS Act started disbursing the first funds in Dec 2024. So all this is slow moving. Trump rebranded the CHIPS program but maintained it. And Congress seems to go along. As far as I know none of the Biden incentives for manufacturing have been revoked.
So:
Trump 1: tariffs (company money to taxpayers)
Biden: incentives (taxpayer money to companies)
Trump 2: tariffs (company money to taxpayers)
Trump and Biden both understood the importance of manufacturing in the US, and agreed with the need to change math in order to encourage manufacturing in the US.
Wow! Glad I come here, as I haven’t seen this in any other media. I’d say this parabola clearly shows the American reshoring effort is bipartisan, or at least not tied to the current administration.
Definitely some domestic spending by US companies, including the government CHIPS act but seems like foreign investors might be hesitant here. We are obviously still a huge consumer client but seems like solid headwinds too.
Lots of the foreign companies are among the big investors in the US.
I thought this was due to the $200B in subsidies for new factories that Biden brought in?
Read my reply above. It gives you the details. The first payment from the CHIPS act was made in Dec 2024, and the recipient was Intel, and it received only $1.1 billion. It then received another $1.1 billion in January 2025, under Trump. Other chipmakers by now also received their first payments.
This money just started flowing.
As I said, all this moves slowly. Lots of due diligence, etc. There is a long delay between announcement of awards and cash in the bank.
I agree, US construction spending has seen a huge jump, which makes me wonder why Trump wanted to redo tariffs.
We have been consistently overspending for decades and running a trade deficit for decades.
Consistency isn’t necessarily a good thing when you are heading down an unsustainable path. We had massive shortages during COVID because we don’t produce anything here.
Now wild swings in policy once you announce your plan isn’t good either but the last 20-30 years has not necessarily been great for many.
I think the value in humans as an input to the economy is headed in one direction. As it has been for at least 50 years.
True. Automation and efficiency have been eliminating middle class jobs. Who even knows a Travel Agent today? Everyone knew at least one back in the 80s. The gatekeeper jobs have been eroding as more consumers can just go direct to the source. Realtors will be heading to the dustbin of history soon, as well.
There’s an interesting book on this topic by Andy Kessler called “Eat People”, which maybe should have the subtitle “your job is next”. What we will do with all the people who no longer have enough value in the marketplace to sustain a middle class lifestyle is a different discussion, one that probably ends with guillotines or an Elysium scenario.
How does AAA stay in business, besides the “International Driver’s License” scheme?
We’ll be a world of 90% bums soon. And, of those, many middle aged men just living in Mom’s basement, waiting for her to die. The near future version of this Admin will bulldoze perfectly good buildings because no one gets a home unless they can pay “market value”, and “market value” goes down with excess supply, and that affects Admin’s bottom line.
About tariffs, you may be killing senorage. When you reduce US imports you also reduce countries investing the proceeds in US treasuries. This makes it more expensive for the US government to finance it’s debt, and puts pressure on the dollar. Given the size of our debt and the governments continuing need to borrow money, maybe senorage should be factored into tariff decisions especially in Japan, China and Brittain’s case
Investing in US treasuries is not an example seigniorage, which is the difference between the value of money and the cost to produce and distribute it.
With regard to trading partners recycling trade surpluses into US treasuries, I’m not sure that’s a sustainable way to finance our fiscal recklessness. If tariffs bring more economic activity back to the US, that may help the fiscal situation too.
There are a lot of strange things going on in the Forex market right now that defy economic and financial data or reality.
Wolf has pointed out that foreign buyers continue to purchase and hold US government debt (At least in the latest reports.)
That requires the buyer to use some type of “dollars” to settle the purchase.
Yet at the same time the US dollar has been under pressure and has fallen against many major currencies.
One of the primary sources for dollars had been selling goods to the US. Those dollars fund a myriad of purchases from US government debt, US assets, oil, and payment of other US dollar debt issued in the international markets.
With lower dollar receipts that should result in US dollar scarcity pushing up the value of the US dollar. Add in high and continuing high interest rates on the US also adds another factor for Higher US dollars.
A perfect example of this is the Australian dollar going on a huge surge in value from around 59 cents to 65 cents despite its huge exposure to China and the RBA reducing rates. Another rate cut is expected in a few weeks time.
Doesn’t make any sense.
Just letting them know it will be bilateral trade agreements
going forward. Should have done that in his 1st term.
Is it me or are the journalist annoying as hell? Same questions over and over expecting a different answer.
It’s probably me.
No. I wouldn’t even call them journalists. I’m not sure what these people are and I’m applying that to every news organization. We don’t really need people asking these dumb questions or regurgitating information to us.
Three things:
1. They are not listening to the other questions and answers,
2. Their questions are from a script that was handed to them to read,
3. They are not very bright to start with.
(some are suffering from all three)
Anthony A.,
I’d add #4: They didn’t get the answer they wanted and are hoping that asking the same question again will produce a different one.
Thanks!! Good point!!
The news media have become a perfect echo chamber. Sometimes I cringe at how basic and uninspired the questions are, even from reputable outlets like NYT. I blame nepotism and WFH
Consumer credit in March didn’t give 2 shits apparently (he says while he eats his 4 payment plan Chipotle)
wtf just happened? The SP500 jumped by 45 points in like a minute and then trimmed back down.
Found it
The major indexes briefly surged late Wednesday, on a report that President Trump may roll back some Biden administration curbs on the sale of some AI related chips.
The move isn’t final but would “revise semiconductor trade restrictions that have drawn strong opposition from major tech companies and foreign governments,” Bloomberg Law reported. Stocks at one point were up nearly 1% but they pulled back heading into the close to be up more modestly.
Thanks, Wolf. I always appreciate your comparison of New and Old in the FOMC statement that highlights what has changed.
“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen.”
It’s called STAGFLATION. It seems Powell does not want to say the word, hoping it will just disappear. Maybe he should call it the “S-word.”
Otherwise, a pretty boring session.
I think Wolf is one of the best numbers analyst out there. His insights at the 30,000-foot level perspective while drilling down to the details is remarkable.
If one read his Monday report, “NY Fed’s “Multivariate Core Trend” Inflation Measure Hits 3.0%, Worst in Over a Year, Predicts Acceleration of PCE Price Index”, they would have already known what Powell was going to say.
The same can be said of much of his analysis…he is weeks and even months ahead of the curve…
This is my go-to site for the real financial story behind the story…kudos…
In my mind, Summary of Presser is.
We are in good place for Monetary policy. Labor market is good condition and inflation is still above the target. We will wait. We are not in hurry.
We can wait.
Repeat the same for most of the Questions.
LOL, you nailed it! Same questions over and over again, and copy-and-paste replies.
I have no idea where Powell comes up with the patience to deal with these reporters.
Big red flag announced on CNBC: DOGE cutting ‘nearly one in three IRS auditors.’
It has been stated over and over that each dollar spent looking for tax evasion returns several times the expenditure.
Most of them were new hires on probation (they can be easily fired). But still, not a good omen for collections.
Admin promised his buddies they wouldn’t be caught.
Let them eat cake.
I have so much confidence that Powell and the Fed will do the right thing.
At least once in my lifetime.
And the same with every politician in DC – Republicans and Democrats.
/s
The rich elites in government, the media and on Wall Street are doing great. The average American is screwed. No amount of tariffs or mean tweets will change anything. Expect things to only get worse.
Wolf
Higher for longer. I understand the Fed bought 20 billion of the 3 year bonds. They sold 47 billion. The discount window lent out 3.5 billion.
Also, Bessent and Powell meet every so often. I guess this will continue until the debt limit is raised. Any thoughts on this?
1. replacement of the amount of maturing securities that’s above the cap
2. Discount Window always has a balance. $3.5 billion is LOW. During the bank panic in March 2023, it was was $153 billion. See:
https://wolfstreet.com/2025/05/01/fed-balance-sheet-qt-14-billion-in-april-2-26-trillion-from-peak-to-6-71-trillion-lowest-since-april-2020/
3. Bessent and Powell meet once a week, as have prior Secretaries of the Treasury
Thanks. Will we ever get a normal yield curve?!
One mans “just following the data” is another mans politics.
One day the Taliban are freedom fighters the next day they are terrorists.
4% seems about right to me but then I’m not sure we should be relying on a FED to tell us what interest rates should be ?
But perhaps all the “natural” mechanisms of that price discovery have been excised from the economy.
But “look at all our prosperity”, the argument will be. Yes we seem to have an incredible ability to scream “more”…”more” as an effective answer to every crisis.
I don’t think we can say anything about things with any certainty until Treasury is back in the market issuing with no debt ceiling in place.
I’m wondering if Trump may actually be able to use the debt ceiling to push many of his policies forward. Hes got extra cash flowing in from Tariffs, that should give him some room to manage insolvency.
He can declare some sort of financial emergency that will short circut judicial dictation of where every dollar must be spent. Layoff large swaths of the government – not furlough, but layoff and terminate their employment – effectively close departments he doesnt want in ways that make them hard to restore when the spigots are turned back on. The only fly in the ointment is his apparent commitment to a 1 trillion defense budget.
I’m sure there are all sorts of legal snares. So it’s all kind of a yawn. We just have to wait 6 months or a year to see what the future actually brings.
I watch “whats going on with shipping” trying to make sense of the tariff armageden – container arrivals down last week, back up to almost normal this week.
The US Treasury markets are the largest markets in the world and are the way in which actual interest rates are determined by the markets and this has always been the case with interest rates.
Forex is the world’s largest market, isn’t it?. Something like 8x the UST debt market; say $8T/day vis a vis $900B.
As for the Fed snd Powell, here’s two question I frequently ask myself that perhaps they’d find of some benefit to ask themselves.
Ever been wrong before? If so, what makes you believe you’re right this time?
When the market price discovery for interest rates needs to be influenced by money printing “quantitative easing”, an exercise of introducing newly printed money to manipulate supply vs. demand, there is no longer market determined interest rates. Instead, it is government determined interest rates.
It becomes a Ponzi, with never ending new money, and unlike a conventional Ponzi, the new money via a printing press doesn’t get shut off. But, Weirmar republic wound up getting shut off.
Resumption of QE is the canary in the coal mine keeling over.
Cargo shipments inbound and outbound are about 35% lower this week than last and that situation is expected to worsen into Summer.
not “worsen” … “improve” would be the right word. Those inbound shipments are imports. And imports whacked GDP, so a slowdown of imports is going to boost GDP. Thank you!
Much of the outbound shipments are empty containers.
Real final sales to domestic purchasers was very strong this past quarter despite the negative GDP due to high imports. Powell mentioned this in a previous speech on why he is looking through the negative GDP number and this metric is probably a better measure of the economy anyway
Yes, which is why I discussed this very prominently here in my GDP article last week, and even pointed out that Powell mentions this sort-of core measure, and he sure did it again:
https://wolfstreet.com/2025/04/30/q1-gdp-whacked-by-massive-spike-in-imports-on-tariff-frontrunning-consumer-spending-grew-business-investment-soared/
A drop in rates will portend a drop in our exchange rate – and higher inflation.
Inflation is already masked by a supply side shock in oil volumes.