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POWELL SPEECH SUMMARY⚠️ 1. The Fed decided to keep rates unchanged and to continue quantitative tightening (QT) at the same pace. 2. The Fed are not confident that policy is restrictive enough and are prepared to raise interest rates further if they aren’t happy with progress. However, they are proceeding carefully by pausing as they believe they have time to do so. The committee is NOT thinking about rate cuts at present. Powell emphasised that their current question is HOW high they are going and then the next question will be how long to stay there. 3. Powell iterated that the current stance of policy is restrictive, which he clarified means policy is putting downward pressure on economic activity and inflation. 4. He acknowledged that the risks of doing too much vs too little have become more two sided. 5. Inflation is well above target, but progress has been made. However, he noted that a few months of good data is not enough to convince them they are confidently getting toward target. 6. The Fed believes below trend growth is likely needed to get to target. He commented on the current strong pace of GDP growth, driven by robust consumer spending. He admitted The Fed may have underestimated the strength of household balance sheets following the pandemic. 7. GDP growth is forecasted to slow 8. Below trend growth (which he estimated to be around 2%) and softening of labor market is needed to get to target. Labor market remains tight but coming into better balance. Wage growth has shown some signs of easing to a pace closer to being consistent with their 2% target. They feel gratified that they have managed to see some good progress on inflation without significant job losses so far. 9. When asked about bond yields and their effect on monetary policy he stated that higher bond yields need to be persistent to have an effect on monetary policy stance. They can’t be as a result of market expectations of Fed interest rate decisions. The current rise in yields, if sustained, is going to have a negative impulse on economic activity. However, Powell was not comfortable estimating the equivalent rate hike effect that recent rises in bond yields will have. 10. Powell stated that Fed staff didn’t put a recession back as their baseline projection. 11. He acknowledged that inflation is painful for people, particularly for those with less disposable income. 12. Commented again about the uncertainty of lags of monetary policy changes. Stated It has been 1 year since last 75bps hike. He feels they are seeing the effects of the hikes seen last year. However, it’s hard to say how much. He noted part of implementing monetary policy is knowing there is significant uncertainty and that it takes time to see the effect. 13. He was asked about whether the projections from the dot plot still stood. He responded saying that when things change so do the Fed’s forecast and opinions and generally the further time goes on from the last dot plot the more things change. He also noted that the dot plot is not a policy promise. • Essentially saying their previous projections have changed from September and thus their actions do not need to be in keeping with previous projections. 14. Fed are watching banking stress. They have been working with institutions so they have a plan for their unrealized losses. They don’t feel that rate hikes are worsening the picture for banks at present. 15. The Fed haven’t been thinking about extending the Bank Term Funding Program as of yet; they’ll make a decision in Q1 2024.