A summary of the FOMC statement
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Economic activity continues to expand at a solid pace despite fluctuations in net exports.
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Unemployment rate remains low and labor market conditions are stable.
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Inflation remains somewhat elevated.
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The Committee aims for maximum employment and 2% inflation over the long term.
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Economic outlook uncertainty has increased, with heightened risks of both higher inflation and higher unemployment.
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The federal funds rate target range is held steady at 4.25% to 4.50%.
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Future rate adjustments will depend on incoming data, evolving economic conditions, and risk assessments.
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The Fed will continue reducing its holdings of Treasury securities, agency debt, and mortgage-backed securities.
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The Committee is committed to supporting employment and bringing inflation back to 2%.
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Policy stance may be adjusted if risks emerge that threaten economic goals.
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Decisions will consider labor market data, inflation trends, financial conditions, and global developments.
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All current members voted in favor of the policy action; Neel Kashkari voted as an alternate.
A summary of the Fed Chair comments
Rate Cuts & Monetary Policy
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Can’t make a projection now, have to wait until June.
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Will have to see how things play out.
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Not at all clear what appropriate monetary policy response would be.
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Time to wait before adjusting policy.
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There are cases in which rate cuts would be appropriate this year, and also cases where rate cuts would not be appropriate.
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I can’t confidently say we know the appropriate rate path.
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President’s calls for rate cuts don’t affect our job at all.
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Trump calling for rate cuts doesn’t affect Fed’s job at all.
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Until they know more, they can wait and see; everyone on committee supported waiting.
Tariffs & Trade Uncertainty
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Fed does not yet see big economic effects in the data yet from tariffs; people are worried but the shock has not hit yet.
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A great deal of uncertainty about tariffs.
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We do not know yet as there is so much uncertainty over tariffs.
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If large increases in tariffs as announced are sustained, will see higher inflation, lower employment.
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Avoiding persistent inflation will depend on size, timing of tariffs, and inflation expectations.
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If nothing happens to alleviate those concerns, would expect that to show up in hard data in weeks and months.
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Watching extremely carefully, does not see much evidence in actual data of slowdown in the economy.
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Says they are now in a new phase where administration is beginning trade talks; has potential to change picture materially or not.
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Big spike in imports to beat tariffs should reverse in Q2; likely net exports to have large positive contribution to GDP.
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Final sales to private domestic buyers were likely flattered by a bit of front running.
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Supply Chains
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Fed does not have tools to address supply chain issues, can be more or less supportive of demand; that is an inefficient way to address supply chain issues.
Consumer Sentiment & Soft Data
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Not dismissing soft data, the link between consumer sentiment and demand in recent years was weak; this is an outsized change in sentiment through.
Inflation & Price Stability
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Have inflation above target, with expectation for upward pressure.
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Last fall, what Fed did, if anything, was a little late, not pre-emptive.
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Without price stability cannot achieve strong labor conditions.
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Aim to keep inflation expectations anchored.
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Underlying inflation picture is good, now running a bit above 2% with decent readings in housing and non-housing services.
Employment & Dual Mandate
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If we see higher inflation, higher unemployment, Fed will not see further progress toward goals next year.
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Haven’t faced question of two goals in tension in a long time, have to keep it in their thinking for now.
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If dual mandate goals are in tension, consider distance from goal, time to close gaps.
Labor Market & Data Dependency
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Will use a combination of forecasts and data.
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It is too early to know.
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This policy is in a good place until they get more data to determine which way to go.
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Need to see more data.
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Right thing to do is await further clarity.
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No hurry, can be patient.
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Let things evolve and become clearer.
Financial Conditions & Past Policy
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We didn’t want sharp tightening of financial conditions when economy was vulnerable.
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QE wasn’t beyond the confines of our mandate.
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Could have explained it better.
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My gut tells me that uncertainty is extremely elevated.
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Downside risks have increased.
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Risks of higher unemployment and higher inflation have risen, but not yet in the data.
General Economic Outlook
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Policy is moderately restrictive.
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Economy is resilient, in good shape.
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Policy is in a very good place.
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Based on survey data, businesses and households are very broadly concerned and postponing decisions.
This article was written by Greg Michalowski at www.forexlive.com.
