On Federal Reserve Policy
- Fed Chair Jerome Powell stated that the reverse repo facility has been decreasing since March and doesn't account for the decline in bank deposits. He mentioned that the reduction of the balance has been orderly and doesn't expect reserves to become scarce soon.
- Powell mentioned that tightening credit may act as a substitute for a rate hike and expressed that his forecasts align closely with the committee's predictions. He reiterated that a strong majority of the committee believe two more rate hikes are necessary before the year ends.
- He also highlighted that the Federal Reserve decided to move more slowly last week, indicating a cautious approach to policy adjustment. He emphasized that we are nearing the destination on rates and it is sensible to proceed at a careful pace to avoid going overboard.
On Inflation and Labor Market
- Powell expressed that they anticipate inflation to decrease this year, and the labor market to continue to gradually cool. He noted a lack of progress in services inflation and still sees a long way to go in terms of monetary policy targets.
- Powell sees a path for inflation to continue falling with little increase in unemployment. He stated that he expects the unemployment rate to increase slightly and hopes that most of the labor market loosening will come through other means rather than unemployment.
On Monetary Policy Effectiveness
- Powell believes there isn't a consensus agreement on the duration it takes for monetary policy to affect the economy, but approximated it to be around a year. He refuted the idea that monetary policy is becoming less effective and is committed to doing what it takes to bring inflation down to 2% over time.
On Rate Hikes
- Powell revealed that the FOMC broadly agrees it will be appropriate to raise rates again this year and perhaps two more times. He clarified that the decision to keep rates on hold was to provide more time for decision-making, hinting at a further cautious approach.
