SPECIAL REPORT: Reaction To Today's Federal Reserve Rate Cut Decision | Axel Merk

My notes on today' news + a live discussion (with audience Q&A) at 5pmET

An hour ago, the Federal Reserve Open Market Committee released the outcome of its meeting this week, putting rate cuts on pause as expected.

And just a few minutes ago, Fed Chair Jerome Powell just wrapped up his press conference related to this release. The market’s reaction (so far) has been muted.

My bullet-point notes to Powell’s conference are below.

And I’m also happy to announce that Fed-watcher Axel Merk is joining us again to deliver his expert reaction to the Fed’s latest guidance as well as take your questions live.

This live event with Axel will take place today at 5pmET/2pmPT and can be accessed via this link or by clicking on the image below:

If you missed the event while it was happening, clicking on the above link/image should take you to a replay.

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Here are the key points I captured from Jerome Powell’s press conference:

POWELL’S PREPARED REMARKS

• The Fed remains squarely focused on dual mandate of maximum employment & stable prices

• Economy is "strong overall" and made significant progress over 2 years

• Labor market cooling, but remains "solid"

• Inflation is much closer to our 2% goal, though remains "somewhat elevated'

• Today the Fed decided to keep its policy interest rate unchanged and to continue QT

• Economic activity is expanding at solid pace (sustained YoY growth of over 2%)

• Investment in equipment & intangible was strong for 2024, though slowed in Q4

• After weakness earlier in the year, housing sector activity is stabilizing

• The jobs market remains "solid", unemployment is low and stable at 4.1%

• The jobs-to-workers gap has narrowed and wage growth slowing -- the labor market is not a contributor to inflation now

• Total PCE prices rose 2.6% YoY, core PCE rose 2.8%

• Longer term inflation expectations are "well-anchored"

• Risks to our dual mandate goals are "well-balanced"

• After cutting by 100bps, which was appropriate and made our policy rate less restrictive, we don't have to cut again right now. Reducing the policy rate too fast could undo our progress on inflation.

• We'll assess incoming data when deciding what to do from here. We're not on any pre-set course. We're in no rush. We'll cut again, or raise rates, depending on what's needed.

• We're conducting a 5-year review of our policy decisions that will wrap up by summer. We welcome any feedback.

• We remain committed to sustained 2% inflation and keeping unemployment low.

• Everything we do is in service to the general public (blah, blah)

MEDIA Q&A

• CNBC/Steve Liesman: Trump is demanding that the Fed cut rates. Has he made that demand of you & what's your response?

  • No comment on what the President said. Powell has had no direct contact from Trump.

  • We're keeping our head down doing our work.

• WSJ/Nick Timraos: You've said your policy rate wasn't overly restrictive. How confident are you about that now?

  • We feel pretty good. Policy is less restrictive for sure after our 100bps of rate cuts.

  • Right now, the policy feels like it's in the right place: bringing inflation down while keeping unemployment low.

• NYT: How should we interpret the removal of the phrase saying "inflation has made good progress towards our 2% goal". What about the rise in inflation expectations?

  • Don't take too much from that. We're just cleaning up the language.

  • We are fully committed to hitting our 2% target.

  • While inflation expectations are moving up on the short end, that's like in response to Trump's announced policies. The Fed thinks it's too early to make an assessment -- we are taking our time to learn more before reacting.

• Bloomberg TV: How tough is it for the Fed to forecast the Administration's fiscal plans?

  • Forecasting is always hard. Right now given Trump's big policy changes, uncertainty is higher. But the dust will settle & once it does, forecasting risk will revert to normal levels.

  • We are looking to the unfolding data to guide us on what we should do. Right now, the economy is in a good place, and inflation and unemployment are trending right.

• Reuters: You made comments in the past praising DEI. Has your position changed in response to recent Admin orders to remove DEI

  • I believe in the value of diversity. But we're looking at the new orders and will comply.

• ABC News: What confirmation can you give the public that the Fed will remain independent? Has the Fed started to model the impact of the new Admin's policies? (deportations, tariffs, etc)

  • We just do what we do. We do best when independent & that's not going to change.

  • Yes, our staff modelers run all sorts of scenarios. We look at all of those. But what probabilities to put on those outcomes is still uncertain given how early in the new Administration we are.

• Bloomberg News: What's the real story on your progress with inflation? Is the job market really as healthy as you're saying -- we're hearing stories of it being hard to find a job.

  • We think nothing's changed. We think seasonality will bring CPI down over time -- especially in shelter, now that we're actually seeing rents starting to decline.

  • But we don't want to act too fast. We're going to wait for the data to confirm our expectations before cutting again.

  • Yes, it's a low-hiring environment now. Good if you have a job, but harder to find a new one. We don't need to see more cooling in the labor market from here. But overall, it still seems stable and in balance to us.

• FOX Business: Now that the flow over the border is slowing, how do you expect the employment market to react? Is the Fed "absurdly overstaffed" as Musk claims

  • True, the immigrant flow has really come down recently. But hiring is also going down. So it could be a wash.

  • The Fed is appropriately staffed (no other comment besides this)

• AP: Why did the Fed leave the NGFS? (Network for Greening The Financial System)

  • Its work has broadened significantly. It's now way beyond our mandate, so we're sticking to our narrow role. This was not a political decision, we have no criticism of them.

• Washington Post: What would further progress look like for consumers? How far away is the Fed from the neutral rate?

  • 2% sustainable inflation will keep prices in check going forward

  • You never know, but I'm pretty sure we're meaningfully above it.

• Politico: Do executive orders and OMB memo apply to the Fed?

  • We do our best to comply (no further answer)

• Financial Times: If we see tariffs like Trump's first term, what impact would you expect this time around?

  • Things are different given that we're coming off of a surge in inflation.

  • The footprint of trade has changed a lot -- it's not as concentrated in China as it was. So the range of possibilities is very wide & the Fed doesn't want to speculate at this time. We'll wait and see whatever tariffs get implemented before making determinations.

• Axios: Was there any discussion about ending QT? Did the AI-prompted selloff signal anything to you about the condition of the financial markets?

  • Reserves are still abundant, so we plan to keep reducing the balance sheet. I have no timing guidance on ending QT.

  • DeepSeek was a big event for parts of the financial markets. We look more at macro trends. But we're watching with interest.

• Economist: Mortgage rates have moved in opposition to the Fed's rate cuts. What are your thoughts on housing?

  • Higher mortgage rates is more of a term premium story. These higher rates, if persistent, will dampen housing activity.

• Yahoo! Finance: As households are unhappy with high prices, should the Fed wait until inflation is at the 2% target before cutting again. Does the uncertainty caused by the threat of tariffs cool business planning and thereby slow economic activity?

  • No. We want to see further progress, but won't wait until things get down to 2%.

  • I don't want to comment on tariffs ("not our job"). That said, trade policy uncertainty can cool future business activities. I'm not seeing that....yet.

• CNN: How concerned are you about a financial asset bubble in the financial markets?

  • Yeah, asset prices are elevated by many metrics right now - especially A.I.. But households, businesses and markets are resilient -- so we're not that worried.

  • It's a mixed bag. Stocks are rich, but bonds have been weakening.

• CBS News: What else are you watching in the labor market? Is uncertainty in immigration making it harder for businesses to plan?

  • We look at the hiring rate. As mentioned, it's been dropping.

  • Low income households are struggling, due to the rise in cost of living.

  • Planning is getting harder -- but I'm only hearing that anecdotally

• Barrons: Do the current conditions remind you of any previous periods in your career?

  • Uncertainty is with us all the time & it's human nature to underestimate risk.

  • That said, conditions are good. We should be able to deal with any surprises from a position of strength.

• MarketNews International: Is a March cut on the table?

  • We don't need to be in a hurry to adjust our policy stance

  • We'll know the time to cut when we see it

• NPR: Are you considering changing the 2% inflation target anytime soon?

  • The 2% inflation goal has served us well. It has become the global standard.

  • Now is not the time to consider changing it. Nor am I interested in changing it.

• Bankrate: Thoughts on cryptocurrency risk? Do you worry that speculation in this unregulated asset class is a danger, or does it merit a place in folks' portfolios?

  • Banks are perfectly able to service customers who buy cryptos, as long as they understand the risks

  • We're not against innovation. But we recommend folks transact crypto through regulated banks.

  • Securities laws are better for answering your question about households. I do think that more regulation of crypto would be wise of Congress to do.

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Let me know in the Comments below if you appreciate special opportunities like this, reacting to breaking developments.

I’m constantly thinking of ways to increase the value I can deliver to my Substack audience.

Hope to see you at the live Q&A!

cheers,

Adam

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