“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.”
“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.”
They might have saved themselves, and us, a whole lot of difficulty and pain in 2021-2022 (and beyond) if they had been similarly publicly open to changing course, in something approximating real time, based on incoming data.
I think they learned that lesson. “Forward guidance” was the official doctrine at the time (something Bernanke invented). And it locked them in when inflation started soaring. Since Sep 2021, the doctrine shifted to “data dependent.”
We all know the US government is having to borrow 1 trillion every 90 to 100 days. But Mr. Wolf, I do not know the the term of the debt issued. My guess is that it is all in the short end of the market, T-bills. This is where they continue to lower rates. This is where the interest rate is now the lowest. The long end of the debt market has gotten very expensive. So if I am right, we now have a new problem the huge and ever growing snowball of US debt in the short end of the US Treasury market. The old debt will constantly need to be rolled over as new debt is added. Am I right or wrong?
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.
Federal Reserve “Goals” and “Mandates” do not have to be the same thing. The “Mandates” are what Congress has given the guidelines for that are completely within the absolute independence for the Federal Reserve to achieve if the Federal Reserve wants to. Federal Reserve “Goals” can be the actual marching orders and include any rationale, including locking in the inflation generated by quantitative easing (QE) with as limited wage gains as possible.
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.
Well my oh my is he wrong on that. They can be fired for cause. It’s never happened before. By the time it wound it’s way through the courts, it wouldn’t matter. He’d have been gone for too long to put him back. He might get some financial compensation if they decided it wasn’t for cause, or at least not a cause they deemed as applicable to the law (as vague as it is).
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.
If the inflation is really as high as WR shows it to be and as perfidious as WR articles show it to be then FED has no business cutting rates.
But what WR and his articles think ( no offence ) does not really matter as Powell does not read his articles.
Policy rates are still way above inflation rates. You don’t wait cutting policy rates until inflation reached target. That’s just stupid.
Volcker started cutting policy rates the first time in May 1980, when Core CPI was 17%, and he cut by about 700 basis points in one fell swoop, you goofballs. He then cut two more times before hiking again.
Volcker cut rates again in Feb & March 1981 when core CPI was 11%, before hiking again.
Volcker’s 3rd rate cut cycle started in Aug 1981 with core CPI at 11.5%, and he ended up hiking again, a final time
Then in July 1982, he cut again, with core CPI now having fallen to 7%.
So should Volcker have kept the EFFR at 19% until core CPI was back to 2% and not cut a minute before? 🤣
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.
Powell’s most important response today was a simple two letter word: NO. Someone from Politico asked Powell if he would resign if Trump asked him to and Powell responded in a micro-second with a resounding NO. He has clearly thought about it. Powell then said later it was against the law for Trump to fire him. What Powell needs to understand is that Congress makes the laws, and Congress can change the laws. The gauntlet has been thrown down. Should be fun to watch.
Otherwise, it was the usual Fedspeak with nothing really new or interesting. Everyone expected a 25 cut.
The Trump Admin is going to blow up the deficit due to tax cuts for the ultra wealthy and the mega corps. Rates from the middle of the curve out to the long end are heading higher. It’s possible that rates may dip for a short time, but higher is the larger long term trend.
Interesting Q&A.
Question From MNI Market News: Would it be appropriate for the Fed to undershoot its inflation target to give households a chance to heal?
Jerome Powell: No.
Unanswered Questions: WTF happened to the concept of 2% average inflation targeting? Is that now dead? If so, what is a realistic target for future inflation? Is it a 2% floor plus whatever overages “accidentally” result? How is that consistent with an advertised 2% inflation goal?
“Unanswered Questions: WTF happened to the concept of 2% average inflation targeting?”
No, that’s not an unanswered question. It’s an answered question. Powell was asked that today and answered it today. [the “Framework” here is the overall strategy, the updated version of which the Fed released in late 2021; it’s a big document posted online]
Powell answered:
“No, that’s not the way our framework works. We’re aiming for inflation at 2%. We did not think it would be appropriate to deliberately undershoot. And you know, part of the problem there is that low inflation can be a problem too…. but that’s not part of our framework and it’s not something we’re going to be looking at in our framework.”
but why then let it run hot, which is averaging, to make up for years of lower than 2%, but not undershoot, which is also averaging, to make up for three years of higher than 2%? why the disparate treatment?
They don’t want inflation below 2%. And if it falls below 2%, then they can let it run hot for a little so as to bring the average up to at least 2%. That’s the “framework” that the Fed released in 2021.
And inflation is going to run over 2%. And they will be fine with it. We’ve discussed this here for a while. With government deficits and debt like this, moderate inflation and economic growth are the solution to keeping the debt from becoming unmanageable.
Overshooting (“let inflation run hot”) is only good when it debases the currency!
Let’s see– the Fed is cutting rates while the President elect is going to pursue additional tariffs, cut the corporate tax rate to 15%, and pursue fiscally expansionary policies?
What could go wrong?
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance.”
Uhh, then why do anything? If the risks to achieving its goals are “roughly in balance”, then there is no point in raising or lowering rates. If ain’t broke, don’t fix it.
If Powell thinks rates are restrictive (in fact, they are now below historical average), then the risks to achieving its goals are clearly not “roughly in balance.” It’s either x or -x. Only an idiot thinks x and -x are the same.
Because rate are high relative to inflation – they’re deemed restrictive (they already shut down the commercial and residential RE market, for example). And the Fed is now in search of neutral. It could be that neutral is far higher than the Fed thinks, and Powell admitted that, but they’re looking for it by “slowly,” as Powell said, approaching it.
As of 11/1 the Fed’s NFCI and ANFCI indicate that financial conditions are the loosest they have been since early 2022.
https://www.chicagofed.org/research/data/nfci/current-data
So the recent inflation was caused by the Covid issues. Now 21/2% I think historically is not bad as long as interest rates are compensating and are not artificially lowered under the rate of inflation.