Powell's "dovish" remarks loud and clear, Dow rises 1% at one point
Federal Reserve Chairman Powell stated that the risks of employment and inflation are moving towards a better balance, with policymakers committed to restoring the inflation rate to the 2% target. Powell pointed out that the labor market conditions have largely returned to the levels before the COVID-19 pandemic, and monetary policy will remain strict to maintain the balance between demand and supply. The FOMC's policy statement suggests that the central bank may be nearing a rate cut, with more accurate descriptions of inflation and unemployment rates. Powell mentioned that the Federal Reserve may discuss a rate cut in September
According to the financial news app Zhitong Finance, Federal Reserve Chairman Powell stated at a press conference after the July policy meeting that central bank policymakers believe that risks are moving towards a better balance in achieving employment and inflation targets. The Federal Open Market Committee (FOMC) has kept the federal funds rate target range unchanged at 5.25%-5.50% for the eighth consecutive time.
Powell said, "Today, the FOMC decided to keep the policy rate unchanged and continue to reduce our holdings of securities." He pointed out that the Fed maintains a strict monetary policy stance to maintain a balance between demand and supply and alleviate inflation pressures. "We are focusing on the risks in both aspects of the dual mandate."
As the Fed aims to return to the 2% inflation target, officials are now paying more attention to sustainable maximum employment, despite some softening in the labor market. Powell noted that the labor market conditions have largely returned to pre-COVID-19 levels, described as "strong but not overheated." He added that the current rates "are able to effectively address the risks and uncertainties we face."
Powell stated that policymakers remain committed to restoring the inflation rate to the 2% target and maintaining a "stable anchor" for inflation expectations. Fed officials are weighing the dual risks of inflation control and unemployment, waiting for more data to better determine the direction of the U.S. economy and the appropriate rate response.
Recent data over the past few months show easing inflation pressures, while the labor market is gradually cooling off from the overheated state in 2022 and 2023. Adjustments to the description of the labor market and inflation in the FOMC's policy statement suggest that the central bank may be nearing a rate cut. The statement indicates that inflation is gradually approaching the Fed's 2% target, and the risks of achieving price stability and maximum employment are more balanced.
The statement mentioned, "Job growth has slowed, the unemployment rate has risen slightly but remains low. Inflation has eased somewhat over the past year but remains slightly high. In recent months, we have made some progress towards achieving the Committee's 2% inflation target." Compared to the "modest" progress mentioned in the June statement, the wording in July has been upgraded, especially in the more accurate descriptions of inflation and unemployment rates.
During the press conference, Powell mentioned that the Fed may discuss a rate cut at the next meeting in September, but no decisions have been made regarding future meetings. He emphasized that whether to cut rates will depend on the upcoming data and the Fed's confidence in sustained inflation decline. He said, "We are getting closer to the time for a rate cut, but we are not there yet."
After the Fed announced no change in rates, the U.S. stock market continued to rise significantly, with the Dow rising 1% at one point and eventually closing up 0.24%; the Nasdaq rose over 2.6%, and the S&P 500 index rose 1.58%. The federal funds futures market predicts a 100% likelihood of at least a 25 basis point rate cut at the September meeting