Experiential Wealth

FOMC March 20, 2024, Press Conference Summary

Mar 20, 2024 | Central Bank, FOMC, Individuals, Institutions

  • Inflation is still too high, ongoing progress in bringing it down is not assured, and the path forward is uncertain. We are fully committed to returning inflation to our 2 percent goal (commitment and credibility).
  • Nominal wage growth has been easing, and job vacancies have declined. FOMC participants expect the rebalancing in the labor market to continue, easing upward pressure on inflation (factors contributing to disinflation).
  • Longer-term inflation expectations appear to remain well anchored (important factor for the 2% anchor).
  • We believe that our policy rate is likely at its peak for this tightening cycle (no more rate hikes).
  • If the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint at some point this year. The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably down toward 2 percent (rate cut this year).
  • We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2 percent (be patient).
  • Reducing policy restraint too late or too little could unduly weaken economic activity and employment (not engineering a recession).
  • In considering any adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks (data dependent).
  • It will be appropriate to slow the pace of balance sheet runoff fairly soon, consistent with the plans we previously issued. The decision to slow the pace of runoff does not mean that our balance sheet will ultimately shrink by less than it would otherwise, but rather allows us to approach that ultimate level more gradually (sensitive to market liquidity).
In the Q&A Session (with modifications for clarity):
  • With higher inflation and higher growth at the same interest rate level, it does not mean the FOMC sees the economy as more tolerant for higher inflation with less of a willingness to slow the economy to achieve the target.
  • We will achieve (the aggregate inflation) 2% goal, and that’s what will happen over time. But we stress over time (“patience”).
  • If we ease too much or too soon, we could see inflation come back, and if we ease too late, we could do unnecessary harm to employment. This is a two- sided risk (“cautious and thus data dependent”).
  • The January CPI and PCE and February CPI were high and higher than expected, but when you put the two of them together, they haven’t really changed the overall story which is that of inflation moving down gradually on a sometimes-bumpy road toward two percent (“be measured in responses”).
  • The Committee wants to see more data that gives us higher confidence that inflation is moving down sustainably toward two percent. This is not in the data right now, but if there were a significant weakening in the data, particularly in the labor market, that could also be a reason to begin the process of reducing rates again (“sensitive to the labor portion of the mandate”).
  • Rates will not go back down to the very low levels that we saw where all around the world there were long run rates that were at or below zero in some cases. I don’t see rates going back down to that level, but I think there’s tremendous uncertainty around that (“higher for much longer”).
  • Strong job growth is not a reason to be concerned about inflation.
  • Financial conditions are weighing on economic activity, for example, in the labor market where demand is cooling off a little bit from the extremely high levels (“financial conditions have tightened”).
  • There isn’t much runoff among mortgage back securities (MBS) right now, but there is in treasuries. Also, we’re talking about going to a lower pace, and in terms of the timing, it would be fairly soon and partial to avoid market/banking turbulence. Our longer run goal is to return to a balance sheet that is mostly treasuries (“QT to slow soon”).