Fed Cuts Rates 0.25%: Powell's December 2024 Press Conference Highlights

Jerome Powell delivered remarks at the FOMC (Federal Open Market Committee) press conference

Dec 18, 2024

Below is a concise overview of the key points from Chair Powell’s December 2024 Federal Reserve press conference, including the policy decision, the economic outlook, and the rationale behind the FOMC’s actions and projections.

1. Policy Decision & Rationale

Rate Cut of 25 Basis Points: The FOMC lowered the target range for the federal funds rate by a quarter percentage point. This brings total easing to 100 basis points (1 percentage point) below its recent peak. Policymakers believe rates remain “meaningfully restrictive” but wanted to provide additional support to ensure the economy stays on track and inflation continues to trend down.
Closer to “Neutral”: Having cut rates by a full percentage point in total, Powell emphasized that policy is much closer to a neutral stance—where it neither stimulates nor restricts the economy. The Committee is therefore adopting a more cautious approach going forward, monitoring data closely before making further adjustments.
Reducing Securities Holdings: In tandem with lowering the policy rate, the Fed continues reducing its securities holdings (balance-sheet runoff), aiming to maintain appropriate monetary conditions without unnecessarily tightening or loosening credit availability.

2. Economic & Labor Market Conditions

Solid Growth, Less Risk of Recession: GDP growth remains stronger than many had earlier predicted, around 2.8% annualized in Q3 (similar to Q2). Consumer spending is resilient, business investment in equipment and intellectual property is solid, and supply conditions have improved—though residential housing activity remains weak.
Gradual Cooling in the Labor Market: Job gains have slowed to a monthly average of around 173,000 over the past three months. Unemployment has edged up to 4.2%—still historically low—and wage growth has moderated. Powell stressed that the labor market is “cooling” but not rapidly or disorderly. The FED does not see labor conditions as a significant source of inflationary pressure at this stage.
Summary of Economic Projections: FOMC participants foresee moderate GDP growth (around 2%) over the next few years. The median unemployment rate is projected to hover in the mid–4% range. Upside and downside risks to both growth and labor remain “roughly in balance.”

3. Inflation Outlook and Risks

Inflation Still Above 2%: Chair Powell highlighted that total PCE inflation is around 2.5% year-over-year, and core PCE (which excludes food and energy) is around 2.8%. Progress has been substantial compared with peak readings above 5% last year, but inflation remains higher than the FED’s 2% target.
Headline vs. Core: Headline inflation can be affected by swings in food and energy, which makes core inflation a better predictor of future trends. Even though the FED’s formal goal is overall (headline) inflation at 2%, policymakers look to core measures to gauge underlying price pressures.
Monetary Policy Path: Given that inflation has come down but recently shown some “sideways” movement on a 12-month basis, the FOMC now projects a slightly higher inflation path going into 2025. Participants also highlighted greater uncertainty around inflation, including geopolitical risks and potential fiscal changes.
Extent & Timing of Future Rate Moves: Powell stressed that the FED is not on a “preset course.” The Committee will assess incoming data on both the economy and inflation, plus the balance of risks, before deciding whether more cuts, a pause, or another strategy is warranted. Rates will remain restrictive until inflation is firmly on track toward 2%.

4. Key Takeaways

Dual Mandate in Focus: The FED is committed to meeting its dual mandate of maximum employment and stable prices. Powell indicated the risks to both sides of the mandate are more balanced than they were a year ago, when inflation concerns strongly dominated.
Cautious Path Ahead: After four quarter-point cuts this year (1% total), the FOMC believes it has provided substantial relief from the previous peak in rates. They will now “slow the pace” of additional cuts, ensuring neither to undermine the ongoing progress on inflation nor to weaken the still-healthy labor market.
Confidence in Achieving 2% Over Time: Chair Powell reiterated that, despite inflation’s slower-than-hoped decline, the FED remains confident it will reach its 2% inflation goal. He emphasized that price stability is crucial to sustaining healthy real wage growth and overall economic well-being.

Bottom Line

The December press conference underscored a FED that sees continued solid economic growth and a gradually cooling labor market, but remains vigilant over inflation that—while down significantly—is still above target.

Having cut rates by a full percentage point over the course of this year, policymakers now anticipate a more measured approach to further easing, dictated by new data on growth, jobs, and inflation risks.

Recap of Key Points from Powell's FED Speech (December 2024)

Economic Overview

The economy is strong and has made significant progress towards the dual mandate goals of maximum employment and price stability.
The labor market has cooled from an overheated state but remains solid.
Inflation has moved closer to the 2% target but is still somewhat elevated.
GDP growth is expected to remain solid, with a median projection of about 2% over the next few years.
The unemployment rate is higher than a year ago but remains low at 4.2%.
Inflation is easing but remains above the 2% target. Core PCE inflation is projected to be 2.4% this year and 2.5% next year.

Monetary Policy Decisions

The Federal Open Market Committee (FOMC) decided to lower the target range for the federal funds rate by a quarter percentage point to 4.25-4.5%.
The FED will continue to reduce its securities holdings.
The committee believes the risks to achieving employment and inflation goals are roughly balanced.
The pace of future rate cuts will be cautious and data-dependent.
The median FOMC participant projects the federal funds rate will be 3.9% at the end of next year and 3.4% at the end of 2026.
The FED made a technical adjustment to the offering rate on its overnight reverse repo facility, aligning it with the bottom of the target range for the federal funds rate.

Rationale for Rate Cut

The decision to cut rates was a "closer call" but deemed the best decision to foster both maximum employment and price stability.
The FED is trying to steer between the risks of moving too slowly (undermining economic activity) and moving too quickly (undermining progress on inflation).
Downside risks to the labor market have diminished, but the labor market is still cooling gradually.
Inflation is still broadly on track, with 12-month core inflation estimated at 2.8%.
The FED coupled the rate cut with "extent and timing" language in the post-meeting statement, signaling a potential slowdown in the pace of further adjustments.

Factors Influencing Future Policy

The slower pace of projected rate cuts for next year reflects higher inflation readings and expectations.
The FED will react to incoming data and adjust policy to best promote maximum employment and price stability.
The FED will be looking for further progress on inflation and continued strength in the labor market.
Uncertainty around inflation is higher, partly due to potential economic effects of future policies.
Some FOMC participants incorporated preliminary estimates of economic effects of policies into their forecasts.
The FED acknowledged that uncertainty warrants a cautious approach.

Inflation Outlook

The FED is confident that inflation has come down a great deal and is on track to return to the 2% target, though it may take another year or two.
The FED believes the story of why inflation should be coming down is still intact, with housing services inflation steadily decreasing and goods inflation returning to pre-pandemic ranges.
The labor market is not a source of significant inflationary pressures.
The FED will not settle for inflation around 2.5% and is committed to achieving the 2% target.

Labor Market Outlook:

The labor market is solid, with low unemployment and healthy wage growth.
The labor market is gradually cooling in an orderly way.
The FED does not believe further softening in the labor market is necessary to achieve 2% inflation.

Other Points

The FED is monitoring geopolitical risks but has not seen significant economic effects from them so far.
The FED is not allowed to own Bitcoin and is not seeking a law change to do so.
The FED believes the US economy is in a good place and expects another good year next year.
Powell expressed confidence in the economy's trajectory and the FED's ability to achieve its goals.
Powell did not rule out a rate hike next year but stated it appears to be an unlikely outcome.

Overall Tone: Cautiously Optimistic

Powell's tone was cautiously optimistic. He emphasized the progress made on inflation and the strength of the economy while acknowledging the remaining challenges and uncertainties.

He conveyed a data-dependent approach to future policy decisions, with a focus on achieving both maximum employment and price stability.

The decision to cut rates, along with the forward guidance, suggests a gradual easing of monetary policy, but with a watchful eye on inflation and the labor market.

ASAP Drew

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