FOMC Statement, 11/7/24

FOMC Statement, 11/7/24
https://www.federalreserve.gov/newsevents/pressreleases/monetary20241107a.htm

Video - Powell's presser starts at 59:00


Notes by YBB

Rates were cut 25 bps - fed funds 4.50-4.75%, bank reserves rate 4.65%, discount rate 4.75%. Treasury QT continues at the reduced level of -$25 billion/mo, but MBS QT remains at -$35 billion/mo.

Rates are on a declining path to a lower but unknown "neutral" rate, but rate cuts cannot be projected beyond that, nor could rate increases be ruled out. The current rates are restrictive - the labor market has cooled down, but inflation remains problematic when looking at 3m, 6m, 12m PCE changes (i.e. don't just focus on 12m changes). There are catchups in prices in housing services, insurance premiums, some wages, etc, so those are affecting some inflation readings. The Fed wants to avoid stagflation (slow growth, high inflation, high unemployment); it will also not persistently undershoot its +2% average inflation target.

Higher bond and mortgage yields after the last Fed rate cut may be due to strong economy and/or investors' concerns about high annual deficits and total debt. He said that those may be manageable now, but their rising trend is unsustainable.

The US economy is in a good shape now. But many people are not happy with their financial situations. It may take some time to adjust to higher prices and to realize that lower inflation doesn't mean lower prices.

Powell didn't want to comment on elections. But he said that elections don't affect the Fed policy in the near-term. The administration and congressional policies may affect Fed's actions in the long-term. The Fed has a large economic model and many inputs go into it including fiscal and tax policies. He said that he won't resign if asked and said further that any such efforts would not be permitted under the law. He also declined to address the issue of Fed independence.

Geopolitical risks remain although those haven't impacted the US economy so far.

Note - Due to a prior commitment, these notes were prepared by watching the tape of Powell's presser after the event, so they weren't posted as timely as is typical.