Dual Mandate Focus: The Federal Reserve remains committed to achieving maximum employment and stable prices, with a continued focus on supporting the U.S. economy's overall strength.
Interest Rate Cut: The Fed reduced its policy interest rate by 50 basis points (0.5%), reflecting confidence that economic growth and inflation are moving in the right direction. The new target range is 4.75% to 5%.
Economic Growth: The U.S. economy continues to grow at a solid pace, with GDP increasing at an annual rate of 2.2%. Consumer spending remains resilient, and investment in business equipment has picked up. The Fed projects GDP growth at a steady rate of around 2% over the next few years.
Labor Market: Conditions in the labor market have cooled, with payroll job gains averaging 116,000 per month recently. The unemployment rate has increased to 4.2%, but wage growth has eased, indicating that the labor market is not contributing to inflationary pressures.
Inflation Outlook: Inflation has decreased from its peak of 7% to an estimated 2.2% in August. Core inflation (excluding food and energy) is at 2.7%. The Fed expects inflation to return to its 2% goal over time, with projections showing 2.3% inflation in 2024 and 2.1% in 2025.
Monetary Policy Path: The Fed remains flexible in its approach to adjusting policy rates. Future decisions will depend on incoming data, and the Fed is prepared to respond if inflation falls more rapidly or if the labor market weakens unexpectedly.
Balance of Risks: The Fed acknowledges that reducing policy restraint too quickly could hinder progress on inflation, while moving too slowly could weaken economic growth and employment. The risks to both inflation and employment are considered balanced at this stage
Source: federalreserve.gov/monetarypolicy, September 18, 2024