August 22, 2024
✅️Inflation
Our restrictive monetary policy helped restore balance between aggregate supply and demand, easing inflationary pressures and ensuring that inflation expectations remained well anchored.
Inflation is now much closer to our objective, with prices having risen 2.5 percent over the past 12 months. After a pause earlier this year, progress toward our 2 percent objective has resumed. My confidence has grown that inflation is on a sustainable path back to 2 percent.
✅️Employment
Today, the labor market has cooled considerably from its formerly overheated state. The unemployment rate began to rise over a year ago and is now at 4.3 percent—still low by historical standards, but almost a full percentage point above its level in early 2023. The cooling in labor market conditions is unmistakable. All told, labor market conditions are now less tight than just before the pandemic in 2019—a year when inflation ran below 2 percent. It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions.
✅️Economy
Overall, the economy continues to grow at a solid pace. But the inflation and labor market data show an evolving situation.
✅️Risks
The upside risks to inflation have diminished. And the downside risks to employment have increased. As we highlighted in our last FOMC statement, we are attentive to the risks to both sides of our dual mandate.
✅️Monetary Policy Outlook
The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks. We will do everything we can to support a strong labor market as we make further progress toward price stability. With an appropriate dialing back of policy restraint, there is good reason to think that the economy will get back to 2 percent inflation while maintaining a strong labor market. The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.
⭐️Summary:
The Fed’s Chair for the first time officially declared the need to adjust monetary policy. The currently conducted monetary policy has helped to ease inflation and it is on its way to the Fed’s objective sustainably.
Labor market has cooled, however, it is still low by historical standards. At the same time further cooling in labor market is undesirable to not make damage to the economic activity. The Fed is going to do everything it can to support a strong labor market. The current level of rates gives the Fed the room to reply to any risks to negative developments in the labor market.
As such officials are ready to cut rates, however, the pace of easing is unclear and will depend on incoming data. Particular attention will be focused on labor market. In the case it faces troubles the Fed is ready and has room to act promptly. As inflation is steadily moving to the target it is now the cooling labor market that is getting under the watch by the Fed concerned with the possible negative effect of such cooling on the economic activity.