Fed Talk 7.30.25

Notable comments from Chairman Powell during today’s FOMC press conference and announcement.

From the FOMC Statement :

• “Despite elevated uncertainty, the economy is in a solid position.  The unemployment rate remains low, and the labor market is at or near maximum employment.”:  In his prepared opening remarks, Chairman Powell laid the groundwork for maintaining a ‘modestly restrictive’ stance and remaining on hold by describing the labor market as being at or near maximum employment, while noting that inflation remains ‘somewhat’ above target. Defending the decision to stay on hold at this meeting was particularly important given that two Federal Reserve Board governors dissented in favor of a 25 basis point cut.

• “Changes to government policies continue to evolve, and their effects on the economy remain uncertain.  Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen.”:  The June CPI numbers began to tick up from May, even as most of the tariff increases have been absorbed by companies awaiting greater clarity on trade negotiations. We anticipate that as trade deals are finalized, these costs will be passed on to consumers. As the saying goes, there’s no such thing as a free lunch.

From the FOMC press conference:

• “The majority of the committee was of the view that inflation was a bit above target and maximum employment is at target.  That calls for modestly restrictive policy…for now.”:  Powell emphasized ‘for now’ when describing the modestly restrictive policy stance, signaling that a change in the federal funds rate could come as early as the next meeting.

• “…A reasonable base case is that these are one-time price effects.  Of course, in the end, there will not be.  This will not turn out to be inflation, because we will make sure that it’s not.  We will, through our tools, make sure this does not move from being a one-time price increase to serious inflation…In the end there should be no doubt we will do what we need to do to keep inflation under control; ideally we do it efficiently.”:  Powell firmly asserted that the Fed will do what it takes to maintain price stability. By referencing the use of their tools, he acknowledged that monetary policy is a blunt instrument—it cannot be applied with surgical precision to target specific sectors of the economy. Instead, monetary policy operates through the demand channel. As the saying goes, the Fed’s brake pedal is far more effective than its gas pedal. By mentioning the goal of ‘doing it efficiently,’ Powell signaled the intent to bring inflation back to target while minimizing the impact on the broader economy and overall employment.

• “It’s not something we do to consider the cost to the government of our debt charges…We don’t consider fiscal needs of the federal government.”:  Powell rightfully pushed back when a reporter referenced the President’s comments suggesting the Fed could help the government save money on debt payments by lowering rates. During World War II, the Federal Reserve pegged short and long-term interest rates to help finance the war.  However, the Fed’s role in fiscal policy ended in 1951 with the Treasury-Federal Reserve Accord, which established the Fed’s independence from the Treasury in order to ensure price stability. The Fed’s dual mandate was later codified in the Federal Reserve Reform Act of 1977.  Powell correctly pointed out that financing fiscal policy is not among the Fed’s congressionally mandated responsibilities and that this independence allows the central bank to distance itself from political decisions.