Deciphering the Fed

September 20, 2023

Federal Reserve Chair Jerome Powell spoke this week following the latest FOMC meeting to provide insights into the current state of the economy and the Fed's monetary policy plans. While interest rates were held steady this time, Powell indicated there could be one more rate hike before year's end. Since the Fed's tightening policy began in March 2022, there have been a total of twelve interest rate hikes. Powell noted they will continue taking a data-dependent approach when deciding on future moves. 

Overview of Economic Conditions

On the whole, Powell stated economic activity continues expanding at a modest pace. Consumer spending has been notably robust, countering inflation's impeding effects. The housing sector, however, remains depressed compared to 2021 due to higher mortgage rates. Business investment has also been hampered by rising interest costs.

Labor market conditions remain tight but are gradually rebalancing as supply and demand even out. Payroll job gains over the past three months averaged a solid 150,000 per month. The unemployment rate ticked up slightly in August but is still low at 3.8%.

Persistently High Inflation

Powell acknowledged inflation remains far above the Fed's 2% target. Prices increased 3.4% over the 12 months ending in August, or 3.9% excluding food and energy. While inflation has cooled since mid-2022, the Fed remains committed to driving it down further through monetary tightening.

Consumer Impacts and Confidence

Measures of consumer financial distress are rising from pandemic lows but remain modest. Powell discussed how public sentiment in surveys may overstate actual economic hardship and impact on consumer behavior. He noted that spending has remained resilient despite inflation dissatisfaction.

The Fed will continue monitoring how rate hikes affect job markets, inflation, and overall economic health. While future policy moves remain data-dependent, Powell reiterated the Fed's commitment to achieving price stability.