SPECIAL REPORT: Reaction To Today's Federal Reserve Update | 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.

And just a few minutes ago, Fed Chair Jerome Powell just wrapped up his press conference related to this release.

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 2% inflation and maximum employment

• Economy is "strong", has made significant progress since COVID crisis

• The labor market has cooled, but is “solid”

• Inflation has cooled. Our 2% target still in place.

• The FOMC decided today to lower our benchmark rate by 0.25%

• We are continuing to reduce our balance sheet through Quantitative Tightening

• We’re confident inflation will get to 2%

• Economic activity is expanding at a “solid pace”

• Growth in consumer spending is "resilient". Same with capital investment spending.

• Housing sector is "weak"

• Labor market impacted in short term by strikes & hurricanes. But that will only have temporary impact.

• Wage growth inflationary pressure is moderating. The labor market is less tight than it was. Rising wages are no longer a significant contributor to inflation.

• Core inflation remains somewhat elevated, but inflation expectations overall look "well-anchored"

• Risks to 2% inflation and maximum employment mandates are well balanced. We are placing equal priority on each now.

• We don't think we're reducing policy rates too quickly. We'll carefully assess incoming data. We're not on any pre-set course. We'll react to the data as/if it changes. We can react quickly and we're well-positioned to do so.

MEDIA Q&A

• Financial Times: How proactive will the Fed be to the policies of the incoming Administration? 

  • Election will have NO effect on our policy decisions (we're independent)

  • We'll watch and react as necessary

• WSJ/Nick Timiraos: Are the growth risks presented by rising US Treasury yields worrisome?

  • We're watching bond yields closely. Too early to say where they'll settle.

  • It appears the moves are not about higher inflation expectations.

  • If these persist, we'll take them into account in our policy - but we're not at that stage right now.

  • Economic activity data has been stronger than expected. We take away a sense the downside risks to the economy are lessening.

• NYTimes: Are you still expecting 4 cuts (=100bps) in total in 2024?

  • Not willing to commit to anything. We'll do what the data tells us to do.

  • In general, we're on a path to a more neutral stance (meaning: we plan to continue to cut from here)

• Reuters: Can you comment on the edits to the FOMC guidance today?

  • We've gained confidence we're on a sustainable path down to our 2% target

• CNBC/Steve Liesman: Are rising deficits a concern? What do you take from rising yields?

  • We'll be updating our models for all the new policies under the Trump Admin. This takes time. It's so early, we don't have anything to model yet.

  • We're watching yields, but it's "not a major factor" in our thinking right now

• AP: Why keep cutting if economy & spending so strong?

  • We think our policy is still restrictive, so to hit our dual mandate, we need to continue

  • We're cutting b/c we don't want the labor market to cool too much AND we think we'll hit 2% inflation target at current momentum

• Fox Business: Core inflation is 2.7% and sticky. Why doesn't this give Fed reason to pause?

  • 3 and 6 month core PCE is closer to 2.3%. We think we're making significant progress, but it won't be in a straight line. It certainly looks to us like inflation is still cooling, especially as some of our lagging indicators  (like shelter/rent) start cooling.

  • Labor market no longer contributing to inflationary pressures

  • There no time pressure to get to the neutral rate. We'll try to land the plane carefully and smoothly.

• Bloomberg: Did the election tell you anything about how Americans view the economy? The unemployment rate is rising, compensation gains are sliding, the quits rate is declining...at what point do we reach a shortfall in maximum employment?

  • JP: not going to comment in any way about the election

  • The labor market hasn't fully stabilized, but it seems to be in a good pace, and our cutting policy should help support it.

  • I see the data trends you mentioned as "normalizing", not as weakening

  • We're 5 years into a nice productivity cycle

• Politico: If Trump asked you to leave would you go?

  • JP: "No" (refused any follow-up)

• Bloomberg Radio: What are you hearing from CEOs and regional bank presidents about their local economies?

  • The comments we hear are "pretty constructive": economy is back to normal, "people feel good" about where the economy is. It's remarkable how well the economy is performing.

  • Geopolitical risks would be a worry if they worsen, but so far, they haven't really impacted the US economy

  • I hear that the economy could be stronger next year than this year

• Washington Post: Your predecessors have warned that rising deficits are not good for the country. What will you say?

  • The Federal government's fiscal path is unsustainable. The debt level currently currently isn't at existential levels,  but its trajectory is.

• Axios: What are the economic uncertainties that prevent you from giving forward guidance?

  • The economy and our policy are "in a VERY good place"

  • We don't want to move too quickly, especially if inflation re-surges

  • We don't want to let the labor market weaken too much, we don't want to find ourselves "behind the curve"

  • We're trying to find "neutral". We're pretty sure that lower than the current benchmark rate

• The Economist: Bond breakevens show that inflation expectations are rising. Does this concern you?

  • We would be concerned if we see long term inflation expectations anchoring at a higher level. We're not seeing that now.

  • We will not allow inflation expectations to drift upward

• CBS News: What's your message to everyday Americans?

  • We realize that people are still feeling the effects of high prices. Inflation stays with you. It takes years of real wage gains for people to feel better. We're well on our way to creating that. But it will take some time before people regain their confidence in the economy.

• Marketplace: What is your plan if we start to see stagflation?

  • The plan is NOT to have stagflation

  • We're doing a great job getting inflation down without a sharp increase in unemployment

  • Our baseline expectation is that we'll continue reducing the FFR until we hit "neutral"

• MNI Market News: Would it be appropriate for the Fed to undershoot its inflation target to give households a chance to heal?

  • JP: "No"

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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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