While the FED reduced its policy percentage by 25 basic points (BPS) for a third consecutive meeting – closure of 2024 with 100 BP’s cumulative cuts – the decision to reduce or pausage was a close call, and members repeated the need for ‘caution’, According to the minutes of the meeting.
As an addition to the Hawkish Tone, the summary of December of Economic Projections (SEP) emphasized a slower pace of relaxation (2 cuts versus 4 in the previous Sep), a downward revision of unemployment and upward revisions in inflation and growth.
Modest havel -like interest statement
Today’s corresponding rate statement resulted in a number of changes, hence the immediate market reaction:
- As for the job market, the recent statement added: ‘The unemployment rate has been stabilized at a low level in recent months, and the labor market conditions remain solid’, to replace the December punishment: ‘Since earlier this year, labor market conditions in general have had have reduced, and the unemployment rate has risen but remains low ‘. With the FED and notes that the labor market remains strong, together with resilient economic activity, this shows why the Central Bank partially has the confidence to reduce the policy this year, albeit at a more gradual pace. From my point of view, however, it is the issue that recent profit in jobs comes from part -time openings; It can also be worth remembering that the recruitment percentages have been set.
- With regard to inflation, the last update kept the expression: ‘inflation remains somewhat increased’ and removed: ‘inflation has made progress in the direction of the 2 percent objective of the committee’. This is in line with the cautious story of the FED: the central bank is looking for more progress on inflation to justify further policy reductions.
- Interestingly, there was nothing in the statement about the newly chosen US President Donald Trump or the policy of his administration.
Fed Chair Powell: ‘We don’t have to hurry’
After the rate announcement, Powell was central and clarified that the Fed does not have to hurry with regard to tariff adjustments. The Fed Chief added that the position of the central bank on policy was ‘very well calibrated’; He also noted that the central bank is ‘not on a pre -set course’.
In his opening comments, Powell repeated that if the labor market weakens or inflation decreases, the FED could resume the relaxation of the policy. Trump and his policy in particular were not referred. But when the press was invited to ask questions, the first predictable about Trump and his recent ‘question’ to lower rates. Powell quickly rejected and remembered that question. He also stated that the FED is uncertain about the policy of the new administration and indicated that evaluating their potential effects is premature. Powell also took the opportunity to remind us that the Fed is an independent actor.
What I thought as one of the most important changes in the language of the rate statement, Powell was asked why the Fed removed the sentence: “Inflation has made progress in the direction of the objective of 2 percent of the committee,” to which he replied that This was not supposed to send a signal and that they ‘decided’ to shorten that part. Let’s face it: they could have tolerated that sentence and maintained the previous message. I don’t buy his response. Powell, however, repeated that the FED should see more progress on inflation.