Joe LaVogna, chief economist at SMBC, spoke on “The Big Money Show” about his expectations for the Federal Reserve’s interest rate decisions and gave his opinion on the current state of the labor market.
The Federal Reserve on Thursday announced its second straight interest rate cut, cutting its benchmark interest rate by 25 basis points, following economic data showing signs of cooling inflation and the labor market.
The 25 basis point rate cut will keep the benchmark federal funds rate in the range of 4.5% to 4.75%. The Fed’s action follows a larger-than-usual 50 basis point rate cut at its September meeting, the first rate cut since March 2020 and taking interest rates from a range of 5.25% to the highest level since 2001. The rate was lowered to 5.5%.
The Federal Reserve’s policy-making arm, the Federal Open Market Committee (FOMC), said, “Labor market conditions have generally eased, and unemployment has increased but remains low. Inflation is the Committee’s goal. “We are making progress towards 2%, but it remains high.”
In their announcement, policymakers said they were “attentive to the risks of both dual mandates” to promote maximum employment and price stability. All FOMC members voted in favor of the rate cut.
The Fed’s preferred inflation measure showed that price increases continued to slow in September.
Federal Reserve Chairman Jerome Powell said the central bank would adjust interest rate adjustments based on economic conditions. (Robert Schmidt/AFP via Getty Images/Getty Images)
“The economy is doing well overall, and we have made significant progress toward our goals over the past two years,” Fed Chairman Jerome Powell said at a press conference.
“While the unemployment rate is significantly higher than a year ago, it has declined modestly over the past three months and remains low at 4.1%,” Powell said. “Overall, a wide range of indicators suggests that labor market conditions are less tight than they were just before the pandemic in 2019. The labor market is not a source of significant inflationary pressures.”
Regarding the Fed’s decision to cut interest rates by 25 basis points (bp), ranging from 4.5% to 4.75%, he said policymakers believe that cutting rates too early could impede inflation, and that lowering rates too soon could hinder inflation. He said he recognized that too much could “unduly weaken economic activity and employment.” ”
“As the economy develops, monetary policy will be adjusted to best promote the goals of maximum employment and price stability. If we don’t, we can reduce policy restraint more slowly. If markets weaken unexpectedly or inflation falls faster than expected, we can act more quickly.” did.
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When asked about the impact of the election on the Fed’s monetary policy decisions and plans for future interest rate changes, Powell responded, “In the short term, the election will have no impact on policy decisions,” pointing out that it is unclear at this point. did. It is unclear what the nature of fiscal policy changes will be, and therefore the impact on the economy is uncertain.
“We don’t speculate, we don’t speculate, we don’t assume. As a general rule, any administration’s policies or policies introduced by Congress can have significant economic effects over time,” Powell said. The Chair said he intends to pursue the goal of dual mandate, noting that he intends to use the Fed’s model to study the economic projections of such a proposal.
Federal Reserve Chairman Jerome Powell will hold a press conference in Washington, DC on September 18th. (Mandel Gunn/AFP via Getty Images/Getty Images)
He then asked whether expectations for higher fiscal deficits were keeping market interest rates higher, and whether there were concerns about increasing fiscal deficits. In response, Chairman Powell said, “I have no comment on fiscal policy,” and “I have nothing further to say about the factors that are causing bond yields to rise.” He also explained that Congress would study those projections, for example, when considering changes to tax laws that could affect the economy.
Why are consumers pessimistic about the economy even though inflation is falling?
Powell was asked by some of President-elect Trump’s advisers about whether he would resign as Fed chairman if President Trump asked him to do so, and he answered “no.” In a subsequent follow-up, he was asked if he thought he should step down in response to such a request, and he answered “no.”
Asked about the huge budget deficit and historic levels of federal debt, he said, like his predecessors in previous roles, “fiscal policy is on an unsustainable path, and the economy is “Our country’s debt levels are not unsustainable.” This path is unsustainable. Dealing with debt is important. It is ultimately a threat to the economy. I have no oversight. It’s fiscal policy. ”
Powell said Fed policymakers keep in mind the dual mandate of maximum employment and price stability when deciding monetary policy. (Ting Sheng/Bloomberg via Getty Images/Getty Images)
Regarding the pace of future interest rate cuts, Powell emphasized that the Fed does not want to go too fast and risk a resurgence of inflation, or too slow and cause unnecessary damage to the labor market and the lives of working people. did.
“These are two risks that we have to manage,” he said. “We are trying to be in the middle and deal with both. Again, the idea is to preserve and support the strength that we have in the labor market and the economy, but at the same time not be restrictive. “As we move towards the 2% target with still restrictive policies, we will assess at every meeting what is the right path.”
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“The exact timing of these things isn’t as important as their overall arc, and those arcs are moving from where we are now to a sense of neutrality, a more sensitive policy. “I don’t know exactly where it is,” meaning I’m sure it’s below where I am, but the further I go, the more uncertain it is about where it is, so move carefully. I plan to. It sounds like you can increase your chances of getting it,” Powell said.
