Powell's press conference - key takeaways

FOMC decided to leave interest rate unchanged with Fed funds staying in the 5.25-5.50% range. Such a decision was widely expected but hawkishness of the economic projections was somewhat surprising and triggered USD strengthening. While 25 bp of additional tightening is still the median forecast for end-2023, new forecast for 2024 calls for 50 bp of rate cuts throughout the next year. Projections from June pointed to 100 bp of rate cuts in 2024. 

Press conference of Fed Chair Powell began at 7:30 pm BST. Below are key takeaways:

Opening statement

• Fed has covered a lot of ground, full effects have yet to be felt
• We can proceed carefully
• Growth in real GDP has come in above expectations
• Consumer spending is particularly robust
• Higher rates are weighing on business investment
• Labor market remains tight
• Labor supply and demand continue to come into better balance
• Unemployment rate at 3.8% remains low
• Nominal wage growth has shown some signs of easing
• I expect labor market rebalancing to continue
• Inflation well above out longer run goal of 2%
• Inflation has moderated somewhat and remains well-anchored
• Process of getting inflation down to 2% has a long way to go
• Current policy stance is restrictive
• Fed estimates core PCE reached 3.9% YoY in August
• FOMC decided to hold in light of how far we've come
• We are prepared to raise rates further if appropriate
• We will keep rates in restrictive territory until confident inflation moving down to 2%

Q&A session

• Keeping rates unchanged does not mean we have reached stance of policy we are seeking
• Majority of policymakers believe another rate hike to be more likely and appropriate than not
• We want to see convincing evidence we have reached appropriate level
• Real interest rates are meaningfully positive
• Summary of economic projections is not a plan
• Summary of economic projections is what people think will be appropriate to achieve 2% inflation target
• There was unanimous support for maintaining current policy stance
• Recent labor market report was a good example of what we want to see
• We are fairly close to where we need to go
• I wouldn't attribute huge importance to one hike
• With the inflation goal closer, we have the ability to move carefully
• Stronger economic activity is the main reason for needing to do more with rates
• It is plausible that the neutral rate is higher than the longer run rate
• It is a good thing that we've seen meaningful rebalancing in the labor market without much increase in unemployment
• Median forecast don't see big increase in unemployment, but that is not guaranteed
• I would not call soft landing a baseline expectation
• It's also possible that if path to soft landing has widened, it may be decided by factors outside of our control
• Decisions we make at last two meetings this year will depend on totality of the data
• GDP is driven by strong consumer spending
• Strikes, government shutdown, resumption of student loan payments and higher long-term rates are among risks
• Energy prices being higher is a significant thing and can affect inflation if sustained
• Economy appears to have significant momentum
• Soft landing is a primary objective for FOMC. That's what we have been trying to achieve
• Forecasts are highly uncertain
• Last three readings of inflation have been very good, I am well aware that we need more than three good readings
• As we get closer to the stance of policy that's appropiate, risks become more two-sided
• Risk of overtightening and undertightening is become more equal
• We tend to look through short-term moves in energy prices
• We are not looking for a decrease in consumer spending
• If economy is stronger than expected, the Fed must do more