Fed Powell is giving his opening remarks and says:
- Purchase of shorter-term securities to support effective control of policy rates.
- Consumer spending solid, business fixed investment expanding.
- Housing sector remains week
- effects of the shutdown should be offset by higher growth next quarter from reopening. Layoffs, hiring remain low
- September labor market releases showed unemployment rate edged up, job gains slowed significantly.
- Labor demand has cleared softened.
- Less dynamic, somewhat softer labor market.
- Downside risks and labor market.
- Inflation remained somewhat elevated.
- Little data on inflation have been released since October meeting.
- Readings on inflation are higher as goods inflation has picked up.
- Disinflation continued for services.
- Near-term risk to inflation tilted upside, to employment to the downside.
- There is no risk-free policy path.
- With downside risk to employment having risen, balance of risks shifted.
- Well positioned to determine adjustment to policy rate
- further normalization of last 3 meetings should help stabilize labor market, key pressure down on inflation.
- Policymaker projections are subject to uncertainty, not a plan or decision.
- No preset by meeting basis.
- Rates are now in a plausible range of neutral.
- Committee judges reserve balances have declined to ample levels
Q&A
- The "extent and timing phrase" points out we'll carefully evaluate incoming data.
- Well positioned to wait to see how economy evolves.
- Consumer spending has been resilient, spending on AI data centers has held up business
- fiscal policy will be supportive.
- Baseline is for solid growth next year.
- AI spending continues
Market reaction at 2:42 PM ET
US stocks have seen some rotation to the downside with the NASDAQ down -0.31%. The S&P is still up 0.15% and the Dow is up 0.61%. The market is reacting somewhat negatively to the comment that rates are now in a plausible neutral range.
Continuing Q&A
- We will get a great deal of data before January meeting.
- We can wait and see how economy evolves.
- Implications of projections is for higher productivity.
- If productivity is 2% per year, you could sustain higher GDP growth without job growth.
- Our 2 goals are a bit in tension
- Everyone at the table agrees inflation is too high.
- All agree labor market has softened and there is further risks.
- The difference among the 2 groups is how do they rate the risks to inflation and to employment.
- Discussions we've had our thoughtful, respective of people with strong views.
- We come together and reach a place where we can make a decision.
- Fairly broad support for today's decision
- Effects of rate cuts so far only beginning to be coming in.
- We will have to be careful to assess household survey data. The data may be distorted because data was not collected in October and half of November.
- We'll need to look at data was skeptical high
- For CPI or household survey, will understand it may be distorted by technical factors.
- I could make the case for either side.
- One tool (the Fed Funds rate) can't do two things at once referring to lowering inflation and keeping employment from rising.
- Does not think a rate cut is anyone's base case.
- Some people feel we should stop here and wait
- Some people feel we should cut once or more.
- People see either holding here or cutting.
FX Market reaction:
The USD moved lower initially, but has since retraced some of the declines.
- For the EURUSD the price moved above a swing area target between 1.1645 and1.16676, but could not extend above the high price from last week at 1.1681. The price is trading at 1.1664 currently.
- For the GBPUSD it move up to test its 100 day moving average at 1.33589. The high price reached 1.3362, but backed off quickly. The price is currently trading at 1.1552.
- For the USDJPY, the price moved down to a new low at 156.11, but has bounced back to 156.38.
More Q&A
- Do not expect a sharp downturn in employment with rate in plausible range of neutral.
- Have made progress this year on non- tariff related inflation.
- In October said that there was no certainty of December rate cut, and that was indeed correct.
- Why we moved today is due to gradual cooling in labor market..
- We think there's -20,000 and payrolls per month.
- Labor market is cooling a touch more gradually than we thought.
- Inflation is coming in a touch lower.
- Evidence is growing that services inflation has come down, and goods inflation is entirely due to tariffs.
- Frontloading next few months purchases to get through tax season.
- When both goals of inflation and employment are equally at risk, we should be at neutral.
- We have been moving in the direction of neutral, now in high end of range of neutral.
- Haven't made a decision on January
- Everyone should understand we will deliver 2% inflation.
- Labor market has significant downside risks.
- People care a lot about the labor market.
- If you get away from tariffs, inflation is in the low 2s
- Tariffs are likely to be one time price increases.
- If didn't have to worry about labor market, policy rate would be higher
- there is an over killed continuing in payroll job numbers, forecasters generally understand that.
- Labor supply has also come down sharply.
- Need watch carefully situation where job creation in negative.
- Don't want to push down on job creation with our policy.
- Right now it's early days with AI and not showing up in layoffs yet.
- Housing market faces significant challenges.
- Quarter point cut in Fed funds rate may not make much of a difference on housing affordability.
- Have not built enough housing for a long time
- tools to address housing shortage are not the Fed's tools.
- Risk of inflation is pretty clear to see.
- We expect most of us, that inflation will be one time price increase but risk that it's not
- asked if we are seeing a positive productivity shock, says yes.
- Also can see the prospects for productivity from AI.
- All things equal higher productivity means a higher rate, but not all things are equal.
- Want to turn this job over to whoever replaces me with the economy in really good shape.
- I want inflation under control and labor market to be strong.
- All my efforts are to get to that place. Asked if he will stay on Fed board after chair term ends, says has nothing new on that.
Market update and 3:20 PM ET
The dollar is moving sharply to the downside and stocks have moved higher as well. The NASDAQ index is now up by 0.51%. The S&P is up 0.83% and the Dow industrial average is up 1.30%.
- The EURUSD is trading at 1.6090 after trading above the 50% midpoint of the move down from the September high to the November low at 1.16929. The high price reached 1.1699.
- The USDJPY move down to test its 100 hour moving average at 155.808. The 200 hour moving averages at 155.66 and a swing area is between 155.64 and 155.75. The low price reached 155.80.
- The GBPUSD moved p to a high of 1.3388. That now taken the price above the 100 day moving average at 1.33592 and the 50% retracement of the move down from the mid September high. That level comes in at 1.3368. The current price is trading at 1.3377
Yields in the US are lower:
- 2-year yield 3.544%, -7.0 basis points.
- 5 year yield 3.727%, -5.3 basis points
- 10 year yield 4.142%, -4.3 basis points
- 30 year yield 4.785%, -2.3 basis points.
Gundlach is on CNBC saying
- I don't feel like that was a hawkish cut.
- Powell went out of his way to frame inflation as less of a problem
- The $40 billion of purchases was the mini QE
- Agrees that the Fed is well-positioned
- His sense of is that the committee is a bit more hawkish than what Fed Powell portrayed.
- If they are going to do one thing versus another it would be to cut rates.
