Key points from the latest Fed interest rate statement and Powell's press conference
Key point 1: Signals pause in the fight against inflation
The Fed is signaling a "hawkish pause," which suggests that there may be a pause in interest rate hikes at the June Fed meeting. However, they still indicate that the tightening cycle is ongoing.
Key point 2: There's still a long way to go to fight inflation
The current inflation rate is still far above the Fed's long-term target of 2%. The US Consumer Price Index (CPI) for March increased by 5% year-on-year, and the core CPI, which excludes food and energy costs, increased by 5.6% year-on-year. These numbers are in line with market expectations, but the core inflation remains stubborn.
Key point 3: Low probability of a recession
Powell is optimistic that the US economy will grow moderately and that the probability of a recession is low. The preliminary signs of a weak labor market indicate that the path to a soft landing for the US economy is not impossible.
Key point 4: It's unlikely that interest rates will be cut this year
Powell stated that "the committee's view is that inflation will not come down that quickly, and that will take some time. If that forecast is broadly correct, then cutting interest rates would not be appropriate." This means that it's unlikely that interest rates will be cut this year.
Key point 5: Concerns about a bank crisis
Powell reiterated the content of the latest statement, stating that pressure on the banking system could lead to a tightening of credit conditions in the US economy, which could put pressure on inflation and the economy. He also emphasized that the banks are sound and flexible, and the Fed will draw lessons from a series of bank failures.
Key point 6: Concerns about a US debt default
Powell believes that resolving the debt ceiling impasse between the two parties is the responsibility of Congress and the Biden administration. He warned that a US debt default would be unprecedented and would have highly uncertain and variable consequences for the US economy. He also emphasized that the central bank cannot protect the US economy from the impact of a sovereign default.
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