Fed chair Powell starts conference after the Fed lowered interest rates by 25 bps to 4.5% in line with expectations on Wall Street. US indices lose after the Powell press conference starts; US100 is down almost 1%, US500 declines 0.6%; US dollar strengthens. Here is the transcription from the Powell's media conference.
Fed chair, Powell remarks
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We can be more cautious as we consider more adjustments. Reducing policy restraint too slowly could unduly weaken the economy and employment.
- Risks to achieving goals are roughly in balance. Total PCE probably rose 2.5% in the 12 months ending in November. The labor market is not a source of inflation pressures.
- Consumer spending is resilient and investment in equipment has strengthened.
- Economic activity has expanded at a solid pace. The labor market remains solid.
- We're squarely focused on two goals. Four officials pencilled in 25 bps or less of cuts for 2025.
- Policy stance is now significantly less restrictive. The monetary policy is well positioned to deal with risks. We can dial back policy restraint more slowly if inflation not moving sustainably toward 2%. Policymaker projections for the policy rate are higher for next year, consistent with higher inflation.
EURUSD drops to 1.04 after hawkish Powell remarks
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- Risks to the labor market have weakened
- Labor market continues to cool, but at a limited and controllable pace
- Inflation is cooling steadily, while it will move above the inflation target in the near term
The hawkish Powell is also causing a strong sell-off on the S&P 500, with the US500 testing the 6000 point area, where the rising trend line is also located.
- The Fed is now closer to a neutral rate, but still the current rate appears to be slightly restrictive
- The expected two cuts next year seem to be a good assessment of the current approach from the Committee
- Current monetary policy appears to be appropriate and according to Powell's 'there's no reason to think a downturn is anymore likely than usual.'
- Core inflation coming down to 2.5% next year, as in projections, would be significant progress.
- It's premature to make any conclusion on impact of tariffs; don't know what countries, what size, how long.
- The committee is discussing ways in which tariffs can drive inflation; we've done a good bit of work on that.
- Higher inflation is probably the biggest factor for the new projections
- We want to see progress on inflation as we think about further cuts, and a solid labor market.
- November inflation is back on track after higher readings.