Not Mission Accomplished.  But…

On Wednesday, America’s central bank made its first downward adjustment to its Federal Funds Rate since the pandemic was just getting started back in March 2020.  This interest rate is what banks charge each other for overnight loans when their cash reserves aren’t adequate to meet weekly regulatory requirements.  While it does not impact other rates directly, the Fed Funds Rate does influence other borrowing costs over time.  A committee known as the Federal Open Market Committee (FOMC) meets every six weeks to discuss this Federal Funds Rate and to decide whether any changes in monetary policy are warranted.  Two days ago, they decreased the range by 0.5 percentage point to 4.75-5.0 percent.

Historically, a cut in this rate is indicative of economy in need of support.  FOMC Chair Jerome Powell spun a different narrative in the post-announcement press conference.  He argued, instead, that a recalibration is underway, one in which managing both inflation and the labor market is now possible. Earlier in this rate cycle, inflation was the primary objective as it had risen to heights not seen in decades.

Chair Powell believes that the labor market is still solid and wants to keep it that way.  He concedes that the trajectory of jobs growth in America has shallowed some but believes that incremental support from interest rate policy will buttress the labor market’s rate of change.  He indicated in the press conference that wage growth is only just above levels which correlate with their target inflation rate of two percent and is slowing.  In short, they want to start adding support before the wheels begin falling off.

The media pressed the Chairman about the idea of the Fed meeting its goal, but Jerome would not give them the quote for which they were looking.  Instead, he stayed with his typical level tone and maintained that the central bank remains data dependent.