US Federal Reserve decided to cut interest rates by 25 bps to 4.75% today. Notable removal of language expressing "greater confidence" in inflation moving sustainably toward 2% target, suggesting increased caution about inflation progress.
Here is the Jerome Powell press conference highlights:
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Economic activity has shown strength since September meeting:
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Downside risks to economic activity have diminished
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Overall economic data has been stronger than expected
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On inflation and policy stance:
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Powell expressed increased confidence in inflation moving toward 2% target
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The removal of "confidence" language in statement was not meant to signal concerns about inflation stickiness
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Policy remains restrictive despite the rate cut
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Inflation appears to be on a sustainable path down to 2%
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Labor market assessment:
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The labor market has cooled significantly and is now essentially in balance
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Importantly, no further cooling in labor market is needed to achieve the 2% inflation target
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If labor market deteriorates, Fed could move more quickly with policy adjustments
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On forward guidance and uncertainty:
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Fed prefers not to provide extensive forward guidance at this time
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Powell acknowledged a fair amount of uncertainty in the outlook
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The Fed maintains its position of not commenting on fiscal policy
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On bond market dynamics:
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Current bond rate movements appear to be primarily driven by growth expectations rather than higher inflation expectations
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Powell indicated the Fed is not at a stage where bond rates need to be factored into policy decisions
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On political considerations:
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Powell emphasized that in the near term, the election will have no effect on policy decisions
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Any administration or Congressional policies' economic effects would be considered alongside other factors
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Fed maintains its position of not commenting on fiscal policy
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In an initial reaction, EURUSD dropped by an additional 0.12%; however, it has fully recovered following further remarks from Powell and is now up 0.59% for the day. US100 and US500 are reversing their earlier declines, with both Gold and Bitcoin also moving upward.
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