FOMC Press Conference December 11, 2019 | Summary and Q&A

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December 11, 2019
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Federal Reserve
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FOMC Press Conference December 11, 2019

TL;DR

Fed Chairman Powell provides an overview of the current economic conditions, emphasizing the strength of the labor market, moderate economic growth, and persistently low inflation.

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Key Insights

  • ๐Ÿคจ The relationship between unemployment and inflation has weakened over the years, requiring more accommodative policy to raise inflation.
  • ๐Ÿ˜˜ Low productivity growth and globalization may be limiting wage growth and inflation.
  • โ„ข๏ธ Trade policy uncertainty, particularly with China, has affected the economy, but the resolution of trade tensions could lead to positive economic outcomes.
  • ๐Ÿ˜˜ Wage growth has been modest but stronger for low-wage workers, indicating some tightening in the labor market.
  • โ˜ ๏ธ The Fed's policy rate is currently appropriate, and future rate changes will depend on incoming data and changes in the economic outlook.
  • ๐Ÿ™ƒ The Fed's framework review aims to strengthen its monetary policy strategies, tools, and communications, with a focus on achieving both sides of its dual mandate.
  • ๐Ÿค” The dot plot continues to serve as an expression of individual Committee members' thinking about monetary policy but should be properly understood and not overemphasized.
  • ๐Ÿคž The Chairman remains committed to the Community Reinvestment Act's mission and hopes for alignment with the OCC on a proposal for its modernization.
  • ๐Ÿค‘ The Fed is open to adapting its strategies and operations to address any pressures or disruptions in the repo market and money markets over year-end.
  • ๐Ÿ˜€ The current economic expansion faces challenges, such as global developments and trade tensions, but the overall economic outlook remains favorable.

Transcript

CHAIR POWELL. Good afternoon, everyone. To begin, I'd like to say a few words about Paul Volcker, who, as you know, passed away earlier this week. Paul Volcker served as Federal Reserve Chair from 1979 to 1987. He accomplished many things during his long and distinguished career at the Fed and elsewhere. Of course, he's best known for leading the f... Read More

Questions & Answers

Q: Why has inflation not accelerated despite low unemployment for an extended period?

Powell explains that the relationship between unemployment and inflation has weakened over the years, which means that policy needs to be more accommodative to raise inflation. However, he believes inflation is moving slightly upward due to rising wages.

Q: Would a change in the Fed's framework make it easier to achieve higher inflation if it does not materialize on its own?

Powell emphasizes the need for policy to support inflation targets and build credibility, as just saying a higher target is not sufficient. He believes a change in the framework could help strengthen the credibility of the inflation target.

Q: Does the Fed have the tools to raise inflation to the 2% target?

Powell acknowledges the challenge of raising inflation but expresses confidence in the Fed's tools and strategies. He cites low productivity growth and globalization as factors that may be holding back wage growth and, consequently, inflation.

Q: How would the Fed support the economy if trade negotiations with China fall apart?

Powell avoids speculating on hypothetical scenarios but acknowledges that trade policy uncertainty has weighed on the economy. He believes that removing uncertainty in trade negotiations could be positive for economic conditions.

Summary & Key Takeaways

  • Chairman Powell pays tribute to former Fed Chair Paul Volcker, highlighting his accomplishments and character.

  • The Fed decides to leave interest rates unchanged, reflecting a favorable economic outlook and the stance of monetary policy to support economic growth and job market strength.

  • The Chairman acknowledges strong household spending and wage growth, but notes weakness in business investment, exports, and manufacturing output due to global developments and trade tensions.

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