Interpretation of Powell's speech
Attribution of inflation and decision-making basis: The main cause of inflation is not the labor market, but tariff factors. The decision on whether to cut interest rates will depend on the judgment of policymakers (here referred to as 'Golden Hair'), and issues of debt sustainability are not within their consideration.
Assessment of the current economic situation: The inflation situation is performing reasonably well, employment is close to full employment levels, and the overall economy is running smoothly.
Tax rate and inflation expectations: The current tax rate is still higher than expected, which may lead to significant long-term inflation.
Conditions for interest rate cuts: It is unclear to what extent the unemployment rate would need to fall to warrant a rate cut; this needs to be assessed based on future actual conditions, weighing the two major objectives of inflation and employment. Only by clarifying which objective is further from being achieved and the time required to achieve these goals can a decision be made.
Economic situation assessment: There is sufficient capital to wait for the situation to develop, employment conditions are robust, and there are no signs of recession in the economy. Although GDP decreased by 0.3% in the first quarter, this distortion was caused by import factors and can be temporarily disregarded while continuing to observe policymakers' actions.
Negotiation and decision-making correlation: It is difficult to make decisions before the relevant negotiations yield results. Due to the lack of outcomes from negotiations, it is impossible to accurately assess their actual impact on inflation, so related decisions cannot be clarified for the time being.
Response to economic phenomena: When asked about the significant reduction in cargo volume at Chinese ports and its impact on the United States, as well as the deadlock in negotiations, Powell stated that his responsibility mainly lies in influencing consumer demand through interest rate hikes or cuts. Supply chain issues and negotiations are not within his purview; these are matters for policymakers and not the Federal Reserve.
Key points of the FOMC statement
Interest rate decision: With a 12-0 voting result, it was decided to maintain the benchmark interest rate at 4.25%-4.50%, marking the third consecutive time the interest rate remains unchanged.
Employment outlook: The unemployment rate is stabilizing, and the labor market is performing resiliently.
Balance sheet reduction situation: The reduction of treasury and mortgage-backed securities (MBS) holdings will continue at the current pace.
Inflation outlook: The current inflation rate is still slightly above expectations, and the risks of high unemployment and high inflation have increased.
Economic outlook: The uncertainty surrounding the economic outlook has further increased. Although fluctuations in net exports have had some impact on economic data, economic activity continues to expand at a solid pace.
It should be noted that expressions such as 'Golden Hair' in the above content are a colloquial reference and should accurately correspond to relevant entities in formal economic analysis. Additionally, the analysis of the economic situation and policy interpretation may vary due to different perspectives and subsequent developments.
