Federal Reserve Chair Jerome Powell delivered a key speech yesterday, addressing the economic outlook and monetary policy at an event organized by the World Affairs Council, the Federal Reserve Bank of Dallas, and the Dallas Regional Chamber. During his remarks, Powell expressed optimism about the current state of the U.S. economy while emphasizing a careful approach to future monetary policy adjustments.
Powell noted that the U.S. economy has rebounded significantly from the challenges of the global pandemic and is currently in a robust position. He mentioned that the nation’s economic output grew by over 3% last year, with a strong pace of 2.5% growth observed so far this year. According to Powell, this performance has been bolstered by healthy consumer spending and an uptick in business investment, despite continued weakness in the housing sector. The expansion of the labor force and improved productivity, he added, have also contributed to the nation’s growth potential without creating overheating pressures.
Turning to the labor market, Powell described conditions as having cooled to more sustainable levels after being overheated in prior years. He pointed out that the job market is now closer to equilibrium, with the number of job openings nearly matching the number of unemployed individuals actively seeking work. Although the unemployment rate has risen to 4.1%, Powell emphasized that it has stabilized in recent months and remains relatively low by historical standards. He also noted that while wage growth has moderated, it continues at a healthy and sustainable pace.
Addressing inflation, Powell stated that the labor market’s cooling, alongside improved supply conditions, has contributed to a significant drop in inflation rates. He noted that after peaking above 7% in mid-2022, inflation has declined markedly. Based on recent data, total personal consumption expenditures (PCE) prices rose by 2.3% over the 12 months ending in October, while core PCE prices, which exclude food and energy, increased by 2.8%. Powell expressed optimism that inflation is now moving closer to the Fed’s 2% target, though he cautioned that further progress is still required.
On monetary policy, Powell announced that the Federal Open Market Committee (FOMC) recently reduced the policy interest rate by a quarter of a percentage point. He explained that the Fed is gradually shifting toward a more neutral policy stance, carefully calibrating its approach to avoid disrupting economic momentum. Powell highlighted the delicate balance between reducing inflation and maintaining economic and labor market strength. He stressed that while the economy is showing resilience, the Fed is not in a hurry to lower rates further. Future adjustments, he stated, would be data-driven, considering evolving economic conditions and risks.
Powell reiterated the Fed’s commitment to its dual mandate of achieving maximum employment and stable prices, emphasizing that the central bank aims to return inflation to its target without causing a surge in unemployment. He concluded by acknowledging the significant progress made but underscoring that the mission is not yet fully accomplished.
Following the speech, crypto prices started dropping; at the time of writing, Bitcoin, Ethereum, and Solana prices are down (in the past 24-hour period) by 1.6%, 3.4%, and 4%, respectively. The only major cryptocurrency to buck the trend is XRP, which is up an impressive 14%, trading at $0.8105. Some crypto analysts and influencers attribute this breakout to recent comments by U.S. SEC chair Gary Gensler, which they interpret as a signal that he is planning to resign soon.
Source: TradingView
