What did the Fed Chair say about monetary policy, employment, inflation and other topics

🏦 Monetary Policy & Interest Rates

• Different views about how to proceed at December meeting

• Strongly differing views at meeting about how to proceed

• Another cut in December is far from assured

• December cut is not for sure, far from it

• Further reduction at December not a foregone conclusion

• We haven’t made a decision about December

• We had strongly differing views today

• Repeats we haven’t made a decision about December, saying this in addition to the usual

• If not getting info, and economy looks unchanged, there will be an argument to slow down on cuts

• There’s a sense from some, let’s pause

• There’s a sense from others, let’s go ahead (on cuts)

• Some people on committee feel it’s time to take a step back

• There is a growing chorus of feeling we should maybe wait a cycle

• For today’s rate cut, a strong, solid vote

• Today’s cut was risk management

• Going forward is a different thing

• Must take a balanced approach

• No risk-free path

• Risks to inflation are to the upside, to employment are to downside; challenging balance

• Tension between two goals, strong views across the committee

• Everyone on committee deeply committed to achieving goals; differences on how to do that

• You would expect there would be a range of views on what to do, and the speed we should do it at — and that’s what we have

• I think so far we’ve done the right thing

• If there is a high level of uncertainty, that could be an argument for caution on moving

• If there were a significant change in the economy, I think we’d pick that up

• Difficult for a central bank to have goals in tension

• We’ve moved 150 basis points, now in range where many estimates of neutral rate live

• We’re 150 basis points closer to neutral than we were a year ago

📉 Inflation & Prices

• Inflation remains somewhat elevated relative to goal

• Estimate total PCE and core PCE rose 2.8%

• Disinflation in services continues

• Disinflation continuing for services

• Most measures of long-term inflation expectations consistent with goal

• Higher tariffs pushing up some goods prices

• Reasonable base case is tariff effects on inflation will be short-lived

• Risk of more persistent inflation needs to be managed

• Obligation is to ensure inflation does not become an ongoing problem

• Directionally CPI was a little softer than expected

• Goods prices moving inflation up, but good news that housing services inflation coming down

• Don’t take a lot of signal on non-market services

• Inflation away from tariffs is not so far from 2% goal

• Maybe 5 or 6 tenths

• Don’t see tight labor market or inflation expectations moving, which could make inflation rise persistent

• We’re not just assuming it will be one-time inflation from tariffs

• Monitoring closely

• Policy modestly restrictive

• Absolutely committed to returning inflation to 2%

• That’s a credible commitment

• It would not be appropriate to assume away the inflation issue

• At the same time, risk of higher inflation has declined since April

• Inflation is still very much making people unhappy

• Will take some time for that to wear off, for real incomes to rise

• Could get 2 or 3 or 4 more tenths of inflation from tariffs, but should be one-time

💼 Labor Market & Employment

• Job availability, hiring difficulty continue to decline

• Not seeing an uptick in claims or downtick in openings; suggests gradual cooling and gives some comfort

• We do get some jobs data to get a picture of the labor market

• State-level claims data sending signal of things being the same

• Labor market is not clearly declining quickly

• A stronger labor market is the best thing we can do for people

• Job creation, if you adjust for overcounting by BLS, is pretty close to zero

• Decline in job creation is mostly a function in change in supply

• Job creation is very low

• Job finding rate for those unemployed is very low

• We do not see weakness in job market accelerating

• That should help labor market from getting worse

• Not seeing any significant deterioration in job openings or claims

• Watching layoffs, healthcare price rise very carefully

• Layoff announcements not in initial claims data yet

• Much of the time the layoffs are about AI; yes, it could have implications for job creation

• Ordinarily labor market is better indicator than spending; in this case it’s a more downbeat reading

• If see data showing labor market is stabilizing or strengthening, it would play into policy decision

• We can’t address both employment and inflation risks with our one tool

💰 Balance Sheet, Liquidity & Financial Conditions

• December will enter next balance sheet phase, hold steady for a time

• Reinvestment strategy will move weighted average maturity closer to stock of outstanding securities

• Clear assessment we are only slightly above ample in reserves

• Not a lot of benefit to continue shrinking balance sheet

• Not a lot of benefit in holding on to get the last few dollars of QT

• Support on committee to announce December 1 freeze of balance sheet size

• December 1 date gives markets a little time to adapt

• At a certain point, will want reserves to start gradually growing

• We’ll be adding reserves at a certain point

• Portfolio has more duration than outstanding Treasury stock

• Want to move balance sheet to shorter duration, have not decided endpoint

• Tightening of money market in recent three weeks

• Don’t see much leverage in banking and financial system

• Don’t see too much leverage in banking and financial system

• Rising defaults where we see them don’t signal a broader credit issue

🧠 AI, Data, and Economic Structure

• Data center investments and AI is a big deal

• Spending on data centers isn’t especially interest-rate sensitive

• Don’t think interest rates are an important part of the data center story

• Investment in AI has been a clear source of growth for the economy

• AI is a source of growth, but consumer spending as well, defying forecasts

• Then, they were ideas, not companies; was a clear bubble; this time, they have earnings and profits

• There was a clear bubble back then

• This is different from the dot-com era

• We have to be careful

• Don’t think we’ll have a very granular understanding of the economy while shutdown is on

• On data, this is temporary

• Could imagine that lack of data affects December decision

• Driving in the fog, you could slow down

• There is a possibility there may be a case for more caution in absence of data

• Not committing that would need to slow down, but you could imagine it

🧾 Economic Outlook & Consumer Spending

• Overall it’s a good economic picture

• It’s a mixed picture

• Not an overly troubling picture

• Seeing some softening; economy is growing about 1.6% this year, slower than last year

• In aggregate, households are in good shape financially

• Consumer spending has been supportive; consumer spending and that’s a big, big chunk of what’s going on

• Consumer spending is a much bigger part of economy than AI

• Many consumer companies say there is a bifurcated economy

• We think there is something there, as far as a ‘K’-shaped economy

• Rates are not accommodative but meaningfully less tight than before

• Difficult for a central bank to have goals in tension

• Balance of risks has shifted

• Remain well positioned

• Well-positioned to respond in a timely way to economic developments

• Face two-sided risks

🧩 Committee Sentiment & Decision Process

• Policymakers have different forecasts and different risk tolerance

• People have different forecasts, different risk tolerances

• Everyone on committee deeply committed to achieving goals; differences on how to do that

• You would expect there would be a range of views on what to do, and the speed we should do it at — and that’s what we have

• I think so far we’ve done the right thing

This article was written by Greg Michalowski at investinglive.com.