Fed Chair Powell on Interest Rates, Employment Risks, and Inflation Outlook

Economic Activity and Growth

• 📊 Recent indicators show that the growth of economic activity has moderated, with GDP rising at a pace of around 1.5% in the first half of the year.
• 📉 This moderation is largely attributed to a slowdown in consumer spending, although business investment in equipment and intangibles has picked up.
• 🏠 Activity in the housing sector remains weak.

Labor Market Dynamics

• ⚠️ The unemployment rate has edged up to 4.3% but remains low overall. Job gains have slowed significantly to an average of 29,000 per month over the past 3 months.
• 📉 Factors contributing to the slowing job gains include a decline in labor force growth due to lower immigration and participation.
• ⚡ Labor demand has softened, with job creation running below the rate needed to keep unemployment constant.
• 📈 Wage growth has continued to moderate while still outpacing inflation.
• 🧩 The market is experiencing an unusual slowing in both the supply and demand for workers, leading to increased downside risks to employment.

Inflation Trends and Outlook

• 🔥 Inflation has eased from its mid-2022 highs but remains elevated relative to the 2% goal, with total PCE prices rising 2.7% and core PCE prices rising 2.9% over the 12 months ending in August.
• 📈 Inflation for goods has picked up, while disinflation appears to be continuing for services.
• ⚠️ Near-term measures of inflation expectations have moved up, but most longer-term expectations remain consistent with the 2% goal.
• 🎯 The median projection for total PCE inflation is 3.0% this year, falling to 2.6% in 2026 and 2.1% in 2027.

Monetary Policy Decisions

• 🎯 The Federal Open Market Committee decided to lower the federal funds rate by a quarter percentage point to a target range of 4.00% to 4.25%.
• 📉 The committee will also continue to reduce the size of its balance sheet.
• ⚖️ The decision was made in light of the shift in the balance of risks, with downside risks to employment having increased.
• 🧐 Policy decisions will continue to be based on incoming data, the evolving outlook, and the balance of risks, not on a preset course.

Dual Mandate and Public Mission

• 🤝 The Fed remains committed to its dual mandate of promoting maximum employment and stable prices for the American people.
• 🌍 Actions are taken to support these goals, understanding their impact on communities, families, and businesses across the country.
• 💯 The Fed is dedicated to achieving its maximum employment and price stability goals.