The Federal Reserve has reduced interest rates by 25 basis points, with indications that two more rate cuts could occur this year. The expectations among Fed members regarding future interest rates are considerably diverse, highlighting a lack of consensus that had been present in previous cycles. The newly appointed member, Miran, submitted a dissenting opinion, advocating for an even larger cut of 50 basis points in today’s decision. Federal Reserve Chair Jerome Powell has commenced his much-anticipated speech where significant updates are expected, and the content on this page will continue to be updated with key details from the meeting.
Powell’s Remarks
In its current decision, the Federal Reserve acknowledged that inflation has increased slightly and continues to rise. Additionally, the year-end unemployment forecast has been set at 4.5%. This projection comes after a long-standing target of 4.3% proved challenging to maintain, necessitating an upward revision due to recent employment figures. The primary focus of Powell’s speech could shift away from employment as it becomes evident that recent job statistics pose significant challenges.
Powell has begun his statement, presenting important highlights regarding the state of the economy:
Powell noted that the unemployment rate remains low although it has seen a modest increase. Employment growth has slowed, with downside risks rising. Inflation has recently increased, staying at a slightly elevated level.
Economic Growth and Challenges
The deceleration in economic growth largely mirrors the slowdown in consumer spending, as GDP growth mirrors this trend. Activities within the housing sector maintain a weak trajectory, while the unemployment rate has shown little change compared to the previous year. The decrease in workforce participation and immigration numbers has slowed wage job increment significantly; most of the employment slowdown stems from a shrinking labor force.
Demand for labor has weakened, although inflation has retracted from its peak in mid-2022, it has risen somewhat. Consumer spending increased by 2.7% in August over the previous year, with core personal consumption expenditure prices climbing by 2.9%.
While inflation in goods prices has accelerated, the downward trend in service sector inflation proceeds. The overall impact of tariffs on inflation remains unclear, though inflation expectations generally align with a 2% target beyond next year. Ongoing policy changes exhibit uncertain impacts on the economy.
Risks of persistent inflation triggered by tariffs need assessment and management, with the base scenario predicting tariffs’ effects on inflation to be short-lived.
