Chair Jerome H. Powell said Fed officials believe the economy is strong the labor market is close to full employment and it’s time to tackle inflation.
Well, the first FOMC meeting is officially in the books, Chairman Jerome Powell held the much-anticipated conference at 2 pm today and answered questions from reporters shortly after. For those of you who weren’t able to watch the live stream or just want a breakdown of some of the key points, read along for the recap.
To start, we should address the biggest takeaway from today’s meeting
- Interest rates will remain unchanged for now.
- Prepare for interest hikes rate hikes to start in March of this year.
- Powell believes we are “maximum employment”
“I think there’s quite a bit of room to raise interest rates without threatening the labor market,” said Chairman Powell, crediting the strong labor market and the bounce back from the ongoing COVID-19 pandemic. The Fed has kept interest rates at essentially zero since the pandemic began in 2020 as a way to try and prop up the economy. Powell’s comments on Wednesday made clear that the central bank has entered a new phase and is now working to address a different issue: an economy that – in some ways – is running too hot. As he mentioned, he believes the current economy and labor market would be able to sustain consecutive lending rate increases without seeing the detrimental effects.
As it stands, the Fed is expected to proceed with three to four rate hikes of 25 basis points each, raising them to around 1% by the end of the year from the near 0% floor we have been experiencing.
Along with a move to increase lending rates, which could come as early as March during the next FOMC meeting, Chairman Powell stated they will move to reduce the Fed’s balance sheet as well. The goal with that approach is to reduce the bold holdings that they have been purchasing and move to address their concerns with inflation.
Chairman Powell stated, “There’s a substantial amount of shrinkage in the balance sheet to be done. That’s going to take some time. We want that process to be orderly and predictable” and they made it clear that they plan on proceeding with the reduction of the balance sheet after the first interest rate hike.
While they stated that they want the reduction to be predictable, with the higher than average inflation rate we are currently seeing, they emphasized an aggressive approach to modifying the monetary policy stance as the year progresses.
During the post-conference Q&A, Chairman Powell was asked about the impact the higher than average inflation rate was having on the purchasing power for the most vulnerable Americans. He stated that the most affected in his view were those in a fixed income as the price of necessities has increased at a higher than ideal rate. Although they will be working to solve the inflation problem with a solution that will benefit all Americans.
With all of the news shared today, it comes without a clear and precise timetable to expect the changes. Although we now know the plan, we will have to wait and see when they will precisely begin to implement the changes.
To watch the full press conference follow the link below