Powell: Interest rates are neutral. Traders on hold – no clear message.

Fed’s Powell opens with remarks saying:

• Buying short-term securities to help maintain effective control over interest rates.
• Consumer spending is stable, and investment in long-term business assets is expanding.
• The housing sector remains weak.
• The effects of business shutdowns should be offset by higher growth next quarter after reopening. Layoffs and hiring remain low.
• September labor market data shows a slight rise in unemployment and a significant slowdown in job growth.
• Labor demand has decreased.
• A less dynamic, somewhat softer labor market.
• Risks of decline in the labor market.
• Inflation remains somewhat high.
• Since the October meeting, few inflation data points have been released.
• Inflation readings are higher due to faster goods inflation.
• Disinflation in the services sector has continued.
• Short-term risk for inflation is tilted up, and for employment – down.
• There is no risk-free policy path.
• With increasing risk of employment decline, the risk balance has shifted.
• In a good position to determine interest rate adjustment.
• Further normalization over the last three meetings should help stabilize the labor market, a key pressure point for reducing inflation.
• Policymakers’ forecasts are uncertain, not a plan or decision.
• No preset decisions for meetings.
• Rates are now in a plausible neutral range.

Q&A Highlights:

• “Range and timing” phrase signals careful assessment of incoming data.
• Better to wait and see how the economy develops.
• Consumer spending is resilient; AI data center spending slows business.
• Fiscal policy will be supportive.
• Baseline scenario is solid growth next year.
• AI spending continues.
• Many data points will come before the January meeting.
• We can wait and see how the economy evolves.
• Forecast implications point to higher productivity.
• With 2% annual productivity growth, higher GDP growth can be maintained without more jobs.
• Both targets (inflation and employment) are slightly strained.
• Everyone agrees inflation is too high.
• Everyone agrees the labor market has weakened and risks remain.
• The difference lies in how the groups assess risks to inflation and employment.
• Careful and respectful discussions with people holding strong views.
• Gathering to reach a place where a decision can be made.
• Broad support for today’s decision.
• Effects of rate cuts are only beginning to show.
• Household survey data must be carefully assessed; data may be skewed because it wasn’t collected fully in October and mid-November.
• Need to consider skeptical data.
• CPI or household survey data may be affected by technical factors.
• Can defend both sides.
• One tool (the Fed rate) cannot do two things at once—reduce inflation and prevent employment rise.
• Doesn’t think rate cuts are anyone’s baseline scenario.
• Some think we should pause and wait.
• Some think we should cut once or more.
• People see either holding here or cutting.

More Q&A:

• Don’t expect a sharp drop in employment with rates in a plausible neutral range.
• Progress has been made this year on non-tariff inflation.
• In October, there was no certainty for a December rate cut; that was true.
• Today’s action is due to gradual cooling of the labor market.
• Estimated -20,000 or more job losses per month.
• Labor market cooling slightly slower than expected.
• Inflation is easing slightly.
• Growing evidence that services inflation is declining; goods inflation mostly due to tariffs.
• Preloading purchases for upcoming months to get through tax season.
• When both inflation and employment targets are equally threatened, we should be neutral.
• Moving toward neutral; currently at upper end of neutral range.
• No decision made for January.
• Everyone should understand the goal of 2% inflation.
• Labor market faces significant downside risks.
• High interest in the labor market.
• Without tariffs, inflation would be in low 2% range.
• Tariffs likely cause a one-time price increase.
• Without labor market concerns, the rate would be higher.
• Labor overemployment continues; forecasts generally recognize it.
• Labor supply also dropped sharply.
• Must monitor situations where job creation is negative.
• Don’t want policy to restrict job creation.
• AI is in early stages; no layoffs yet.
• Housing market faces serious challenges.
• A 0.25% Fed rate cut may not impact housing affordability much.
• Not enough housing built for a long time.
• Tools for housing shortage are not Fed tools.
• Inflation risk is clear.
• Most expect inflation will be a one-time price increase, but risk remains.
• On positive productivity shock: yes.
• AI productivity prospects are visible.
• All else equal, higher productivity implies higher rate, but all conditions aren’t equal.
• Wants to hand off to successor with economy in strong condition.
• Wants inflation controlled and labor market strong.
• All efforts focused on achieving this. On whether he will remain on the Fed Board afterward, he has nothing new.

Summary:

• Not a hawkish statement markets feared.
• Powell presented inflation as less pressing.
• $40 billion purchases were mini-quantitative easing.
• Fed is in a good position.
• Committee slightly more hawkish than Powell indicated to reassure markets.
• If there is a next move, it would first be a rate cut.