What Did Chairman Powell Say About the Economy on December 19, 2018?

TL;DR

Chairman Powell noted that the U.S. economy is growing strongly, with low unemployment and stable inflation. However, recent market volatility and softer growth expectations led the FOMC to modestly lower its interest rate projections for 2019, emphasizing a data-dependent approach to future policy adjustments.

Transcript

Transcript of Chairman Powell's Press Conference December 19, 2018 CHAIRMAN POWELL. Good afternoon, everyone. Thanks very much for being here today. [Cough] Pardon me. Over the past year the economy has been growing at a strong pace, the unemployment rate has been near record lows, and inflation has been low and stable. All of those things remain t... Read More

Key Insights

• 😘 The economy has been performing well with strong growth, low unemployment, and stable inflation.
• 🥺 Financial market volatility and tightening conditions have led to some softening in the outlook.
• ❓ The Fed believes their policy decisions should be data-dependent and will adjust accordingly.
• ✋ There is a focus on tailoring regulations for smaller institutions while maintaining high standards for systemically important banks.
• 🧑‍⚕️ Wage growth is gradually increasing, and the labor market is tightening, although there may still be some slack among younger workers.
• 🌐 The Fed is monitoring global developments, including trade tensions and events such as Brexit, which could have implications for the economy.

Questions & Answers

Q: Why hasn't inflation risen despite the tight labor market?

Inflation has remained below 2 percent, but the Committee believes it can be patient in moving forward. The strength of the economy and low unemployment give them room to be cautious.

Q: Will the Fed alter the course of balance sheet normalization in 2019?

The Fed believes the current approach of allowing the balance sheet to run off on automatic pilot while using interest rate policy to adjust to incoming data has been effective. They do not plan to change this approach.

Q: How will the Fed adjust its policy moves in light of recent market volatility?

The Fed takes into account the tightening of financial conditions when making policy decisions. They adjust forecasts for growth and inflation accordingly. However, the recent volatility does not fundamentally alter the outlook.

Q: Should policy be restrictive next year as suggested by the dot plot?

The dot plot represents individual projections and should not be taken as a signal of current or near-term policy. The Fed will adjust policy based on incoming data and the outlook for the economy.

Summary & Key Takeaways

• The U.S. economy has been growing at a strong pace, with low unemployment and stable inflation.

• Some crosscurrents have emerged since September, including moderating growth in other economies and increased financial market volatility.

• The projections show a modest decrease in the federal funds rate next year, reflecting the expectations of most FOMC participants.