MNI FED WATCH: Powell-No Hurry To Cut Still-Restrictive Rates
MNI (WASHINGTON) - Federal Reserve officials need to see more improvement on inflation or additional weakness in the labor market before cutting interest rates further, Fed Chair Jerome Powell said Wednesday.
At the same time, Powell indicated monetary policy is still quite restrictive, suggesting he sees room for further policy easing ahead.
"We do not need to be in a hurry to adjust our policy stance," the Fed chair said in a press conference. "We will be focusing on seeing real progress on inflation, or some weakness in the labor market before we consider making further adjustments."
Fed officials expect to see continued disinflation in the United States but "it is just a question of when," Powell said. "We seem to be set up for further progress, but being seen to set up for it is one thing but having it is another, so we want to see further progress on inflation.
The FOMC unanimously decided to keep rates on hold for the first time since July at their current range of 4.25-4.5%.
Powell indicated heightened uncertainty regarding policy should be passing and to understand the economic impact of any tariffs the Fed needs to see not only the specifics of the Trump administration’s policies but also how trading partners respond and how businesses choose to pass through the cost increases or not.
WAITING MODE
"You are just on-hold waiting to see what comes down," he said. "It is a very large economy, and policy is affected at the margin, but we will wait and see."
The FOMC assessment is that policy is "meaningfully restrictive," Powell said, also noting that increased Treasury yields at the long-end could represent a tightening of financial conditions if sustained.
Risks to the central bank's dual mandate goals are "roughly in balance" and "policy is well-positioned," Powell told reporters.
"If the economy remains strong and inflation does not continue to move sustainable toward 2%, we can maintain policy restraint for longer," he said. "If the labor market were to weaken or fall more quickly than anticipated, we can ease policy accordingly." (See: MNI INTERVIEW: Lockhart Sees Fed On Hold 'Til At Least Midyear)
RESERVES ABUNDANT
The Federal Reserve also signaled that it will continue to roll off assets from its balance sheet.
"The most recent data do suggest that reserves are still abundant. Reserves remain roughly as high as they were when runoff began and the federal funds rate has remained very steady in the target range," said Powell, without indicating when the QT program might end. "I don't have anything to say to you about particular dates."