FED President Jerome Powell made important statements about the current state of the economy and the FED's monetary policy in his meeting with Marketplace host Kai Ryssdal.
Powell started his speech by stating that the initial opinion regarding Personal Consumption Expenditures (PCE) was in line with expectations and that he found this encouraging. He also stated that the February data was in line with what the FED wanted to see.
To gain confidence about inflation, Powell emphasized the need for better data like last year's. He expressed his opinion that the FED's approach is stable and they are making progress. He also clarified that they did not overreact to last year's good data and will not overreact to this year's two high months.
Powell warned that cutting rates too soon would be devastating, and waiting too long could cause unnecessary harm to the economy and labor market. He stated that the economy is poised to perform in unexpected ways and emphasized that the risks are two-sided.
The FED President reiterated that they are prepared for the economy to perform in unexpected ways and that they can and will be careful about this decision. He also expressed his confidence in the strength of the economy.
Powell said monetary policy is well positioned to respond to a number of different inputs. He stated that there is no need to rush to reduce interest rates and that they can wait and be more confident before making such a decision. Making the right decision is the most important thing in order of importance, Powell said. He added that the policy is working with a delay and they are now in a position to deal with any situation.
Powell said they wanted to be more sure before lowering interest rates. Additionally, Powell summarized the following in his speech:
- The data surprised us; We must be unusually humble and ready for different results.
- We say that we expect inflation to move towards 2%, sometimes on a bumpy path.
- If our baseline scenario does not come true, we will keep interest rates where they are for longer.
- We don't know where interest rates will return when all this is over.
- My own expectation is that interest rates will not fall to the very low levels they were before the epidemic.
- The economy is not harmed by this interest rate.
- Studies on inflation have not yet been completed, but the risks regarding the FED's two targets are better balanced.
- If we see unexpected weakness in the labor market, this could spark a policy response.
- There is no doubt that our economy is strong, our labor market is strong and we have made progress on inflation, which shows that we have a chance to reduce inflation while our economy is still strong.
- The likelihood of a recession is not high right now. We have a chance to reduce inflation without harming the economy.
- There is no reason to think that the economy is in recession or on the verge of recession.
- At such a time, off-cyclical interest rate cuts will never occur.
- The fact that the decision was taken unanimously does not mean that there are no different opinions.
- Interest rate decisions do not take full shape before the policy meeting.
- It's really helpful to hear different opinions so you can test your own perspective.
*This is not investment advice.
