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Fed Chairman Powell: The Fed is particularly cautious about the "first cut" and needs to wait for inflation confidence to increase

2024-03-21

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In the early morning of Thursday (March 21) Beijing time, the Federal Reserve announced that it would continue to maintain the target range of the federal funds rate at 5.25%-5.50%. This is the fifth consecutive time that interest rates have been kept unchanged since September last year.

Powell said at the press conference that the Federal Reserve has made considerable economic progress and inflation has eased significantly and continues to fall, but there are still uncertainties. He reiterated that it remains firmly focused on its dual mission and that overall the risks of achieving its goals are becoming better balanced.

He said that the labor market remains relatively tight, supply and demand are moving towards a better balance, nominal wage growth has slowed, and participants expect this rebalancing process to continue. High interest rates have put pressure on corporate fixed-income investments, but strong consumer demand and the recovery of supply chains have boosted GDP growth.

Powell noted that the Fed's policy rate may have peaked and that it would be appropriate to begin easing monetary policy at some point this year. He also emphasized as always that interest rates will be kept at high levels for longer if necessary; but if the labor market weakens unexpectedly, countermeasures may also be needed.

During the question and answer session, Powell said that the first interest rate cut has a significant impact, "We will treat this issue cautiously and let the data speak." He mentioned that the data in January and February did not boost the central bank's confidence in inflation, " We expect to see slightly stronger inflation probably in the first half of the year."

"We will carefully evaluate the incoming data and make decisions one by one. Before cutting interest rates, we need more confidence that inflation continues to decline," he also said. "Our economic forecast is not some kind of plan. We will base it on actual conditions." Adjust to the situation.”

Although this has been Powell's "fixed rhetoric", it may have another purpose this time, because some members of Congress have previously asked him to formulate a clear timetable for interest rate cuts.

Regarding the balance sheet, Powell revealed that officials have discussed the possibility of slowing down the balance sheet at this meeting. "The general view is that the pace of balance sheet reduction will soon be slowed down."

When asked for more thoughts on the labor market, he said, "We are witnessing a strong labor market, and the extreme imbalances have mostly been resolved and there are no cracks. We do expect the unemployment rate to rise and are watching closely. layoffs."

"We generally believe that once the overnight repo market stabilizes, as the balance sheet shrinks, reserves should decline at an almost one-to-one rate." Powell said that he will pay close attention to signs indicating the end of the balance sheet reduction, hoping to Maintain a certain buffer on reserves.

Regarding the digital dollar, Powell said that the Federal Reserve is still a long way from launching a central bank digital currency, including the need for legislative authorization and other steps. He also pointed out that the statement that the Federal Reserve is studying a central bank digital currency is wrong.

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Fed Chairman Powell: The Fed is particularly cautious about the "first cut" and needs to wait for inflation confidence to increase

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