Powell on Fed holding rates: "Unemployment has stabilized somewhat, but inflation remains somewhat elevated" [Fed Watch]

Korea Economic Daily

Summary

Jerome Powell said the Fed held rates because "unemployment has stabilized somewhat, but inflation remains somewhat elevated."
Powell cited levels including a 4.4% December unemployment rate, 2.9% PCE inflation, and 3.0% core PCE inflation, saying they remain elevated.
Powell said nonfarm employment fell by an average of 22,000 per month over the past three months and that labor demand has clearly weakened.

"Unemployment rate at 4.4% with little change for several months"

"Inflation is somewhat elevated relative to the 2% long-run goal"

"Jobs down by 22,000 a month…labor demand clearly weakening"

Jerome Powell, chair of the U.S. central bank (Fed), said at a press conference following the January Federal Open Market Committee (FOMC) meeting on the 28th (local time) that "the unemployment rate has stabilized somewhat, but inflation is somewhat elevated," explaining the rationale for holding interest rates steady.

Powell opened the briefing by saying, "We judge that the current stance of monetary policy is appropriate to foster progress toward maximum employment and our 2% inflation objective."

He noted, "The unemployment rate in December was 4.4% and has shown little change in recent months," adding, "Inflation has eased considerably from its mid-2022 peak, but remains somewhat elevated relative to our 2% longer-run goal." In other words, conditions do not warrant cutting rates to support employment or raising rates to rein in inflation.

Indeed, inflation has eased considerably from its mid-2022 peak, but remains somewhat elevated relative to the 2% longer-run goal. Powell said, "Based on estimates using the consumer price index, over the 12 months through December, total personal consumption expenditures (PCE) inflation rose 2.9%, and core PCE inflation, which excludes volatile food and energy prices, rose 3.0%." This is interpreted as reflecting tariff effects in inflation.

Powell made clear that while labor market conditions have stabilized somewhat, they still warrant close monitoring. He said, "Over the past three months, total nonfarm employment decreased by an average of 22,000 per month," and explained, "One important factor behind the slowdown in job gains over the past year has been a slower rise in the labor force due to reduced immigration and a decline in the labor force participation rate." He added, "Labor demand has also clearly weakened," noting that "other indicators such as vacancies, layoffs, hiring, and nominal wage growth have also shown little change in recent months."

New York=Correspondent Park Shin-young nyusos@hankyung.com