FOMC January 29, 2025, Press Conference Q&A Summary

Jan 29, 2025 | Central Bank, FOMC, Individuals, Institutions

The following summary represents direct quotes (with minor immaterial changes to make reading easier) from the press conference.

A. Backdrop

Monetary policy actions are guided by the dual mandate to promote maximum employment and stable prices for the American people. We see the risks to achieving our employment and inflation goals as being roughly in balance, and we are attentive to the risks on both sides of our mandate.
The economy is strong overall and has made significant progress toward our goals over the past two years. For 2024 as a whole, GDP looks to have risen above 2 percent, bolstered by resilient consumer spending. Investment in equipment and intangibles appears to have slowed in the fourth quarter but was strong for the year overall. Following weakness in the middle of last year, activity in the housing sector seems to have stabilized.
Labor market conditions have cooled from their formerly overheated state and remain solid. The unemployment rate has stabilized since the middle of last year, and at 4.1 percent in December, remains low. Nominal wage growth has eased over the past year, and the jobs-to-workers gap has narrowed. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures.
Inflation has moved much closer to our 2 percent longer-run goal, though it remains somewhat elevated. Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses, and forecasters, as well as measures from financial markets.
Over the course of our three previous meetings, we lowered our policy rate by a full percentage point from its peak. That recalibration of our policy stance was appropriate in light of the progress on inflation and the rebalancing in the labor market. With our policy stance significantly less restrictive than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance.
Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly.

B. Q&A

Policy stance is very well calibrated and is meaningfully less restrictive than it was before we begin to cut. It’s 100 basis points less restrictive. And for that reason, we’re going to be focusing on seeing real progress on inflation or alternatively, some weakness in the labor market before we consider making adjustments. Our policy stance is restrictive. Meaningfully restrictive. Not highly restrictive, but meaningfully restrictive.
3 percent interest rate is above pretty much everyone on the Committee’s estimates of the longer-run neutral (r*). The broad sense of the Committee is that we don’t need to be in a hurry to adjust our policy stance.
Conditions seem to be broadly in balance. We want policy to be restrictive enough to continue to foster further, further progress for our 2 percent inflation goal. At the same time, we don’t need to see further weakening in the labor market to achieve that goal, and that’s kind of what we’ve been getting.
Short-term inflation expectation moved up and could be related to some of the new (Trump) policies. we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.
Forecasts are conditional at a minimum on just a set of expectations, and they’re highly uncertain in both directions. In the current situation, there’s probably some elevated uncertainty because of significant policy shifts in four areas: tariffs, immigration, fiscal policy, and regulatory policy. It’s a very large economy, and policies affect it at the margin, but we’ll, we’re going to wait and see.
Regarding the impact from tariff policies, the range of possibilities is very, very wide. We don’t know what’s going to be tariff, we don’t know for how long or how much, what countries, we don’t know about retaliation, we don’t know how it’s going to transmit through the economy to consumers. There are lots of places where that price increase from the tariff can show up between the manufacturer and a consumer. Just so many variables. So we’re just going to have to wait and see.
Most recent data do suggest that the Federal Reserve balance sheet reserve is still abundant and remains roughly as high as they were when runoff began. We do intend to reduce the size of our balance sheet to a level that’s consistent with implementing monetary policy efficiently and effectively in our ample reserves regime.
Couple of factors are being monitored regarding employment: (1) there’s a low hiring rate, and so that if there were to be a spike in layoffs, if companies were to start to reduce headcount, you would see unemployment go up pretty quickly, because the hiring rate is quite low; and (2) overall, this is a good labor market at 4.1 percent unemployment, that’s just a really good level, and you’ve been solidly there now for six, seven months. And job creation is pretty close to a level that will hold the unemployment rate there, given that there’ll be much lower population growth.