Jerome Powell Details Federal Reserve’s Decision on Interest Rate and Economic Outlook

Federal Reserve Chairman Jerome Powell explained the decision to maintain the reference interest rate at approximately 4.3% during the press conference following the latest monetary policy meeting. Powell highlighted that economic uncertainty remains high, justifying the wait before making significant changes. The monetary policy remains cautious due to uncertainties in the global economy.

Economic Uncertainty and Growth Outlook

Powell emphasized the slowdown in consumption and a 2.3% GDP growth in the fourth quarter of the previous year. Although projections for 2025 suggest growth near 2%, uncertainty about consumption and investment continues to weigh on the Federal Open Market Committee’s decisions. Expectations for GDP this year were adjusted to 1.7%.

Labor Market Remains Strong, but Inflation Risks Persist

The labor market remains robust, with an average of 200,000 new jobs per month and a low unemployment rate of 4.1%. However, wages continue to grow faster than inflation, which could create inflationary pressures. Powell assured that the labor market is balanced and does not pose an immediate threat to price stability.

Inflation Still Above 2% Target

Despite the decrease in inflation over the last two years, it remains above the 2% target. Prices in the Personal Consumption Expenditures (PCE) index increased by 2.5% in the 12 months leading up to February. Despite these increases, long-term inflation expectations remain aligned with the Federal Reserve’s target.

Monetary Policy and Future Projections

Powell explained that the Federal Reserve is not in a hurry to modify its stance, given the high uncertainty that characterizes the economic landscape. The projected reference rate would remain at 3.9% by the end of this year and 3.4% by the end of next year, according to the current Committee estimates. However, these decisions could be adjusted if the economic situation changes.

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Reduction in the Pace of Balance Sheet Contraction

In a technical change, the Federal Reserve decided to reduce the pace of contraction of its balance sheet. Starting in April, the monthly limit for Treasury maturities will be reduced, aiming to maintain a more stable balance and prevent excessive tightening in the money markets. This measure will not have a significant impact on monetary policy in the medium term.

Five-Year Review of Monetary Policy

The Federal Reserve continues its five-year review of monetary policy. It conducts outreach activities, such as forums and conferences, to assess the impact on maximum employment and price stability. The review will conclude by the end of summer. It may lead to adjustments in current strategies based on findings.

Commitment to the Employment and Price Stability Mandate

Powell reaffirmed the Federal Reserve’s commitment to promoting maximum employment and ensuring price stability. He assured decisions aim to improve the economic situation for all U.S. citizens. Powell emphasized adjusting monetary policy based on changing economic conditions. The Federal Reserve will continue to focus on its core objectives.

Conclusion and Future Expectations

The Federal Reserve continues to closely monitor economic developments to adjust its policy accordingly. Powell concluded that future decisions will depend on how economic factors evolve and whether inflation continues to move away from the 2% target.

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