The FOMC is maintaining a restrictive policy stance, holding interest rates steady while emphasizing a data-dependent, meeting-by-meeting approach. Chair Powell highlighted significant uncertainty from geopolitical events in the Middle East and the unpredictable path of inflation, signaling that future rate cuts are not guaranteed.
Inflation remains stubbornly above the 2% target, with the Fed identifying specific supply-side factors as key culprits. Tariffs are seen as a major contributor to elevated goods inflation, while recent oil price shocks are pushing up near-term headline figures and expectations.
The labor market is showing clear signs of cooling, with job gains slowing to a halt when adjusted for statistical anomalies. The Fed attributes this weakness primarily to a supply-side constraint—reduced labor force growth due to changes in immigration policy—rather than a simple drop in demand.
The Fed has upgraded its long-term growth projections, acknowledging a multi-year trend of higher productivity that predates the generative AI boom. However, Powell noted that the immediate impact of the AI investment cycle is inflationary due to massive demand for data centers and related infrastructure, which may also be pushing up the neutral interest rate.
Keep pulling the thread on Federal Open Market Committee.