Power Lunch - Fed Rate Decision 6/18/25

Episode Date: June 18, 2025

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And welcome to Power Lunch at our special coverage of one of the most consequential moments for the markets, the economy, your money, and everything in between. That is the Federal Reserve's interest rate decision and expectation of what may come in the future. Hi, everybody. Kelly is off today. I'm Brian Sullivan. At stake today, the direction of your borrowing costs, the outlook for inflation, whether or not the Federal Reserve believes this economy, your economy, is cooling or still running too hot. And what about Iran and Israel and the increased price of oil? What does the Fed chair, Jerome Powell, have to say about all of this? We're going to find out. And whether or not rate cuts, they may not come today, but they're likely going to come down the road. How many could impact your borrowing costs as well?

Stock market just off record highs after that record-breaking comeback. And the Fed's next move could shape everything from your 401k to your 529 to maybe even your mortgage. always, full team coverage for you, breaking down the Fed's imminent market reaction and decision. We're going to get a check right now on the markets. Dow Industrial average up just a touch. Nasdaq up just a touch more, about one half of 1%. Two-year treasury yield, about three and a half percent as well. There's your markets pre-fed. I'm going to shut up. Let's get right now to your market panel as we await the decision. Joining us now, we've got Jim Karen of Morgan Stanley Investment Management. David Kelly of JP Morgan Asset Management.

and Francis Donald of RBC capital markets. Francis Donald, I'm going to start with you not taking anything away from the Fed. We don't expect the rate change today, but how much right now does the Federal Reserve matter to the markets? It'll matter today to the markets, but so do Trump's comments about this. It matters whether we see escalations in the war. It matters if we see more news on that one big beautiful bill. immigration matters, the electrical grid matters. There's a lot going on in the macro world right now, and the Fed is one piece of it. I'm still watching that long end of the curve, Brian. I think that's

going to be most important to a lot of Americans rather than what happens today with the Fed. Maybe our first electrical grid reference ever when we talk about the Fed. I love it. David Kelly, what matters to you today? Well, I think their forecast. I think it's going to be a bit of a stagflationary move. I think they're going to expect slower growth and higher inflation. And my big question is, does that mean that they move one of the rate cuts, the two rate cuts they have this year, one of them into 2026? I think that's what the market will be watching. Jim, Karen, what matters to you? Well, for me, it's the baseline compared to March. Look, the unemployment rate or the forecast for 2025 from the Fed, the unemployment rate was 4.4. Right now, it's 4.2. The inflation rate that the

Fed is expecting for 2025, the core PC is 2.8 from the last summary of economic projections. And right now, it's about 2.5, 2.6. So to me, what matters is exactly what David's saying is how they're going to change those forecasts off of the baseline of the last summary of economic projections that was released in March. And it may just be an error adjustment, but I don't see them doing too much different. I'm going to ask the entire panel to stick around because the decision is in about 15 to 20 seconds.

And when Jim says summary of economic projections, what he's actually saying is what they call the dot plots, which is just a fancy way to say. What do Federal Reserve members expect is going to happen down the road? Maybe no cut today. What they say is key to find out what's going on. Steve Leesman, now. No change in the Federal Reserve funds rate, saying at a net level of 4.5% to 4.5%.

Some really interesting stuff in the forecast. Let me tell you about the assessment of the economy first. They're saying the economy continues to expand at a solid pace. Unemployment remains low. Inflation is somewhat elevated. And they talk about the idea that swings in net exports, all that front running is affecting the data. Now, the Fed forecasts increased the inflation outlook. They reduce growth for 2025.

This is a second step in a row that the Fed has taken toward a more stagflationary forecast of higher inflation and lower growth. The forecast shows risks are to the upside for inflation and to the downside for growth. Let me give you some numbers here. 2025 GDP, now 1.4%, down from 1.7, which was down from 2.1, so pretty much a very similar drop. Core PCE, 3.1 from 2.8, this is for 2025, from 2.5, so two big step up in the outlook for Core PCE this year. Risks on Core, weighted to the upside. Unemployment, 4-5. Had been 4-4, before that, 4-3, so steadily stepping up on the unemployment outlook. Now, the question you've really wondered about, which is, what did they do with the outlook for rates? Still 3.9% for this year.

Seven officials did not want a rate cut at all. That's up from four in the prior outlook, but it remained the same because some other folks came down a little bit. 2026, the conversation Brian and I were having just before at 1 o'clock, they did eliminate one rate cut, down to 3.6 from, or sure, up to 3.6 from. 3.4, and then again that remains in place for 2027, 3.4 from 3.1. Inflation is seen declining in 2026. That's important. We pass through it, but not as much as previously forecast. Growth recovers in 2026, but again, less than previously forecast. The Fed says uncertainty remains high about all of its forecast. The Fed said in the statement that uncertainty has diminished but remains elevated. But if you look at the measures of uncertainty, which we talked about,

at one o'clock with Brian, those all remain elevated. Guys, back to you. So very quickly, Steve, back to you. I'm kind of writing all this stuff down. Higher inflationary expectations, lower growth. You mentioned the S word stagflation. I would imagine that makes the Federal Reserve's decision-making a little bit harder because that is not a great combination.

I do, I think it's a good assessment, Brian. I do not see this Fed right now having made a further step towards cutting rates. It still could happen in September, but this forecast doesn't say, hey, we're incrementally, marginally, at least somewhat more confident about cutting rates in September. This one says, you know what? Whatever I had last time, I'm pretty much increasing the inflation rate and decreasing the growth rate by almost the same measure as I did from December to March. I did again from March to June. All right. Let's go now.

Steve, stick around. Let's go back to our panel to get some. some reaction. Francis, I'm going to go to you, electrical grid aside. Let's talk about expectations. Because again, no cut right now, but we knew that. Okay, not one person thought there was going to be a cut today. But when I'm looking at the end of this year into next year, the expectations, the dot plots, are all over the place. Where do you and RBC fall? Well, we expect the Fed to cut later this year, but look at the balance of shifts in these forecasts. We're going from stagflation light to maybe stagflation moderate. And this is going to be the story for the U.S. economy.

Inflation is just slightly too hot for comfort. A three handle is a psychological level that matters, and we're coming in below on trend growth. And all of the news that has happened in the last two, four, six, eight weeks is going to push us towards even higher inflation forecasts and probably lower growth. That's going to continue to put tension on this dual mandate. So we're going to focus a lot on this CEP and what these forecasts mean. But Brian, next time they're going to change again. And my expectation is for an even higher inflation number and an even lower growth number. I'll go back to you quickly, Francis. Why do you think they're going to change again? Why are you so confident in that? Well, they'll have to. I'm not sure why they say uncertainty has diminished.

I wish I was that confident. But we have a series of ongoing shocks that have yet to be felt in this economy. And I think these numbers are still a little bit light on the inflation side and a little bit too strong on the growth side. David Kelly, would you agree with that that the future is fairly cloudy? We don't know what's even going to happen in the Middle East, inflation, energy prices, etc. Yeah, I think it is very cloudy. I will say that since the last meeting, I think some of the tariff uncertainty is diminished. I mean, the tariff rates are not what they were on April 8th. Well, the thing that strikes me is, if you look at that forecast at the end of this year, they think that 4.2% is the right unemployment rate in the long run, and they think they're only

going to be three-tenths ahead of that. But they think that 2% inflation is the right number in the long run. It looks like they're going to be more than a percent above that. So, you know, J-PAL said, you know, if they're both off track, we're going to look at how far they're off track and how quickly they get back to that track. And that suggests that they'll be very reluctant to cut rates until that inflation number comes down. So, David, back to you. Again, and you nailed it, and I want to hear Jim's thoughts and Steve's and everybody's. When I hear inflation is expected to go up, my little brain immediately goes to higher rates, not lower rates? No, I think they'll hold rates longer. I mean, I think they could hold rates all the way

until the end of the year because I think they know that, look, if this is tariffs, it will fade in 2026. Even if you get a sugar rush from fiscal stimulus from this bill going through Congress, that sugar rush will fade. Sugar rushes do. And so by the end of next year, that's a long way away. But by the end of the next year, the economy should be cooling down, inflation should be cooling down, and maybe then they can give us some lower rates. But right now, do not hold your breath, waiting for low rates on the Federal Reserve because they don't seem to have any intention of delivering them. Jim, Karen, I can't see you right now, but are you holding your breath? I mean, do you think that there's going to be on hold for longer? So let me start with the punchline. The punchline is that the Fed

did not change their 2025 forecast for policy rates. To me, what that says is that they haven't really changed their position on anything. What has changed is the distributional outcomes, the possibilities, the confidence level that they have in the risks for inflation and employment. So what the Fed is basically saying is that the risks to inflation are skewed to the upside. The risks to unemployment is also skewed to the upside. This is what I think is somewhat being confused as a stag inflationary event for markets. This is really about a risk distribution. So if the risk distribution is suggesting that there might be higher inflation and that the unemployment rate might move higher, but they're unwilling to change their policy rate, then really

what they're telling you is that the dispersion around what the Fed forecasters are, you know, have has grown. And we've seen that. So, so you said that we went from four people calling for no rate cuts to now, seven people calling for no rate cuts. That's the big news here is that we're moving towards a no rate cut environment going forward. Yeah, and Steve Leesman, you got, you know, You've got obviously your Fed survey. So you know what people expect. And looking at it four months ago, three months ago, two months ago now, and then looking out, are you experienced that same level to Francis's point of sort of uncertainty?

And in an uncertain environment, people tend not always, but often to do nothing because they don't know what to do. Yeah, a lot to unpack here. First of all, the Fed survey was spot on, Brian. I'll just point out we were at 390 for this year and 355 for next year. So that really gave people a heads up in that Fed survey of where people thought the Fed might be for 2026. And I agree there is a massive dispersion around outcomes, but the median official is still on that 3-9 or two rate cuts. I think there's good news and bad news here. The first good news is that – well, I'll give you the bad news first.

The bad news is the Fed clearly believes inflation is to come from tariffs. They do not believe, at least I guess the median official does not believe that we're out of the woods on tariffs. The good news on that is they do expect the tariff inflationary impulse to pass through the economy into 2026. And maybe even enough sometime in the second half that there's more clarity that they can eventually cut rates. The point is right now they did not make that movement today, but I think the point that was made earlier is right, they still see themselves going that way. They just ain't in any particular hurry to get there. I love what Steve just said, Francis, because it reminded me that the tariffs are still a gigantic unknown. Two months ago, that's pretty much all we talked about was tariffs.

We're at the Port of Long Beach. What's going to happen? The president kind of walked those back. now we're talking about Iran and Israel, Middle East, inflation, energy, and yet the tariff situation is still hanging out there. I just don't know if I was a voting member of the Fed, how I would have any visibility whatsoever, not just around the Middle East, but around tariffs and how countries react. Brian, I know this question is for Francis, but I want to just remind you of something. Do you remember at the last press conference, Powell challenged the reporter?

and said, what would you write down? But that's why we get paid the medium bucks, because we don't actually have to do anything. That's the beautiful part, Francis. We don't actually have to make decisions. You do. Brian, here's the thing. We know two things to be true.

There's a lot we don't know. We don't know what the future of immigration policy is going to be. We don't know what that one big beautiful bill is going to pass like. But here's what we know about tariffs. The average effective tariff rate in place is 14 to 15 percent. that is the largest trade shock in 100 years in the United States. That's what's in place right now. That is true and fact.

Second thing we know is it takes a few months for tariffs to work their way through. Inflation depends how much inventories in the system, but we know this from history. So what do we know? There's a major trade shock. You're right. We don't talk about it enough. And it has yet to play out. But it's not just tariffs, Brian.

We have a big energy shock that just happened in the last few days. When I think about when I take a first scan here, it feels like that's not even factoring into the story here and it needs to. Yeah. Well, because there's so much to focus on. We have a four-hour show, Francis. Might have able to do it. We have like a half an hour. Very quickly.

Final comments from David and Jim as well. David and Jim, same question to both of you. David, I'll start with you. We just talked about all the uncertainty. What is David Kelly most watching next? What's the next big thing for you? The exact details on this big stimulus bill, because people talk about it as being, you know,

reconciliation bill, but it's going to put a lot of things. stimulus into the economy in early 2026, depending on income tax refunds. Because a lot of these tax cuts take the start on January 1, 2025. That means big refund checks, and that could sugar up the economy in the first half of next year. And I'm sure the Federal Reserve is looking at that, not just the tariff issue. Because if it's just tariff inflation, it'll fade. But if tariffs followed by stimulus, then this inflation could last a while. Jim Karen, you and Morgan Stanley, what's the next big thing on your radar?

So I'm going to take a slightly out of consensus view, and I'm going to say that a lot of this, news regarding tariffs right now, all of this uncertainty is going to start to pass as we go into the second half of the year. And it's going to become more like, you know, known unknowns, essentially. So effectively, what I'm saying is that as the tariff uncertainty starts to pass away, we get the effective tariff rate, we know what it is. The risk is to the upside in the sense that if the economy does not deteriorate as much as people think that it will, then there's going to have to be a pretty big adjustment, not just

in interest rates, but also in equity prices. And I think that that upside risk is not fully appreciated right now, and we're seeing that in the skews and the dynamics for equity forecasters and even for where policy rates may actually end up being. So I think the boat is heavily tilted to the downside in risks, and I don't think that there's enough weight on the upside. And we want to play this in a balanced way. So diversifying a portfolio and repositioning ourselves to account for that is going to be

very important. Well, I know a lot of people have Steve Leesman because they've been investing in Europe or We've had a lot of rate cuts. I know the presidents talked about that. Very quickly, cherry on top this whole thing. I know you've got to go into lockout. Is the big takeaway, at least until we hear from Jay Powell, is the big takeaway that we are likely to go longer without rate cuts?

Or did I miss something? Well, I was just interested in Jim's use of the word these tariffs will pass. I was like, pass how? Like a kidney stone or a sailboat on a quiet summer night? I was thinking gas, but, you know, that's where my mind goes. So I think there's two ways this could happen. I think Jim is right. Eventually, the market will have enough information to price this in and put a price on it.

There is maybe an upside that I haven't mentioned here, which is that if the inflation forecast is 3.1 on core CPU. Or core PCE. But the Fed is still forecasting the two rate cuts. Does it tell us there's more tolerance by the Fed to still cut? to still cut rates amid higher inflation. I think that might be a question that may be worthy of the Fed chair. Well, you get to ask that question

because you're going to go into the Fed lockup at about 15 minutes that press conference will start and you're going to get a chance to answer that as well. Jim, David, Francis, Steve, thank you all very much. We're going to go to Rick Centellie, but very quickly, folks, I want to show you something called the CME Fed Watch tool. And here's how confusing it is for next year.

and Rick, I know you can hear me, so we'll bring you in, and maybe you can comment on this, because you're in Chicago, by the way. There are all these different expectations for rates maybe one year, the June meeting next year, 2026. There are six different levels between 2.75% and 4.14%. So 1.5% variance, which is a big deal for the Fed, in where the Fed may be, I guess my point, Rick, is it that cloudy next year? You know, I don't think it's that cloudy because I think that the weather projections are never very accurate. Just think about the past.

How many rate cuts were built in, how few were built in now. In the end, I love our Chicago products, and I think it's interesting to know what investors think is happening down the road. But to think that the accuracy of anything in the Fed Fund futures or option world, that far advance has a high degree of accuracy? Well, it doesn't. It's only accurate given the inputs that we currently know. So I think it's always nice to know what investors are thinking, but I wouldn't look to that to be any sort of reality. I think the reality is that the markets, as Jim Caron said, you know, maybe we're going to pass this by. I'll tell you what's passing by. Many people's 401ks are passing by golden opportunities. Look what the market has voiced over the last month,

with regard to equities and interest rates. And just today, if you look at the moves in the market, two-year yields are a bit lower, but they're coming back. Only a couple basis points. Ten-year yields are a little bit higher, so the curve is steepened. But virtually, if you blur your eyes, markets haven't moved much. And if you look at the dollar index,

it's almost exactly where it was before the statement was read. What are the markets saying? They don't really see anything new here. And in terms of tariffs, I'll tell you what. The Fed used the word transitory and maybe not in a good way, I'll use it. I think tariff adjita is transitory. And the problem with that is that you won't be able to go back in time

and do all the trades that uncertainty is keeping people from doing. I don't know if the future's ever been very certain, but I could tell you this, that the opportunities in many markets remain large because the uncertainties kept so many players on the sideline. In terms of the crystal ball and the dock plots, I never found them highly accurate. Because they can be changed.

If you don't like the dot plot, the next, you just change your plot. So it's like, what time is dinner? Six until it's seven, and then it's at eight, and then it's at 7.30, right? You just keep moving around very quickly. Don't tell anybody, Rick, but here's the dirty secret. It's just between you and I.

You've made more money by far investing in gold, a literally piece of metal than you have in the stock market over the last six months. Yep, but there's another way to look at it. If you haven't done gold and you haven't done the stock market, you haven't made much money. Fair enough. But don't tell anybody that.

Rick Centellie, thank you. All right, that is the Federal Reserve decision. Now we will wait to hear from the man in charge. That is J. Powell himself, press conference, 12 minutes, 27, sorry, 26, wait, 25 seconds. That's when the press conference begins. We're going to take a very quick break. We're back with more right after this. The stock market up 100 points on the Dow, the NASDAQ, up about 30.

three-tenths of one percent, no change in the equity markets. They are slightly higher, in part because the Federal Reserve made no change on interest rates. It kept rates exactly where they were, although the projections for future rate cuts came back just a bit. In other words, we may go the full year. May, we don't know, may go the full year without a rate cut at all. Joining us out of talk about it all, Loretta Mester, former Cleveland Fed president, now adjunct professor finance at the University of Wharton, also a CNBC contributor, and we are darn glad that you are here, Loretta. If you were still on the Fed, what would your decision and expectation for rate cuts be? Yeah, I would have probably already been at one cut as opposed to two, so I may not have changed my

SEC. Remember, the SEP, the one that we had before was in March, and that was before the April 2nd announcement on tariffs. So it moved kind of the way you would have expected, right? Growth, right? They took down a bit. Inflation they took up. And even though the median, and remember, these are individual forecasts and then they compute a median after the amalgam of those forecasts, even though that didn't change, the weight sort of moved toward one cut as opposed to two. So again, we're a higher path for policy this year and next year. So all that, I think, is expected. The one thing I didn't expect is for them to say that uncertainty has diminished. I would have thought they would have just

said it remains uncertain, not that it increased more. So that was a little bit of a surprise. But I also think that's because the economy has been pretty resilient. I mean, the labor market is holding up well. Growth is rebounding from the very, you know, the negative reading we had in the first quarter. So in that sense, you know, there's more clarity about the strength of the economy. But the question is, what's the economy going to look like in the second-hand of the year? Can you answer your own question? Answer your own question. No, I think what they're telling us is they see that these, even though we don't know the size of the tariffs and, you know, where they're ultimately going to land and their effects, that they are going to hold here for now because the impetus from those

tariffs are higher inflation, at least for a time. And a bit of the business. it's weaker growth and a little bit higher unemployment, and they need to do what they have to do, as the chair has been telling everyone, to make sure that inflation and inflation expectations remain anchored. So even though they may look through the price increases that come from tariffs, there's no compelling reason for them to make a change now in the policy rate with the economy performing pretty well,

and they're still uncertainty about the second half. I think they made the right move today by doing nothing with the funds rate. And I think the way hold and see until they get a little more clarity. As one of your guests that said, we also have the budget bill working its way through Congress, and that'll be part of the outlook as well. So I know you were talking, Brian, oh, they can just change those dots whenever you want. You were the one making the plots, the dots, on the plots. Right.

But remember, right, we change them. any forecaster will change them based on incoming information and how that informs their outlook. So I don't think it's a bad thing that the forecasts are responding to incoming economic data. I think that's a good thing. And I think it's the change from one SEP to another that's very informative. And I think today we got informed that, you know, the bulk of the committee is thinking that we're going to need a slightly more restrictive policy stance. than they had thought at the time of the March meeting. And I think that's very clear in this.

And I don't believe. I agree. I mean, you change your forecast for anything based on your known information at the time, right? My flight will land at 4 p.m. Then it's delayed because you chose to fly out of Newark, sadly. So you got a call and say, well, I'm going to be delayed. I'll land at six. You change your expectation based on what you have at the time.

I guess my point, Loretta, was when I look at the CME's Fedwatch tool for next, year, I see six different expectations, all within a relatively similar band, variance a little bit, of ideas. These are some of the smartest like you, economists in the world. And I guess my point is there doesn't seem to be a lot of visibility to next year. Well, I think that underscores what the chair has been saying, which is there's a lot of uncertainty still here. But when you're doing this kind of policymaking, you're doing two things. You want to minimize the risk that you're going to make a policy mistake. And you also want to minimize the cost of any policy mistake you might make.

So right now, it's not that costly to hold, right? The economy is doing well. The unemployment rate is low. You know, growth in employment is holding up pretty well. It's moderated, but that was to be expected. Right. And even the latest inflation news is pretty. People that are watching.

So with that environment, you don't have to move right now, but you've got to be prepared if the economy changes in the second half to be able to respond. And I think they are in a position to be able to respond once they see how the economy's evolving. And, you know, before this, I know there's a July meeting, but think about the next September meeting where we're going to get CPs. You're going to also have a lot more economic data coming in. Well, somebody said.

Somebody said earlier in the show, they don't buy barrels of oil, Loretta, but they use gasoline. I thought that was well said because most of our viewers and listeners, they're not trading interest rate futures, but they might want to buy a home. And they're watching mortgage rates. And the bond market already did move. No, that's true. But also think about the way people's expectations about future inflation are formulated. The gasoline price is one of those prices that really matter in terms of inflation. expectations. So what I expect to hear in Jay's press conference today is that the Fed is still,

you know, very focused on making sure that it does policy that will actually support that anchoring of inflation expectations. And I think that's part of what they're doing with this hold and C strategy. Loretta Mester, we're sure glad you're on our team. CNBC contributor, super smart. Thank you. Thanks, Brian. Thank you very much. All right. Let's bring in now our senior markets commentator Michael Santoli as we await Jay Pett. Is it, Mike, we got an empty podium, but soon to be filled by J. Powell. Is there anything the market wants that podium and the person behind it to say?

I think the market always wants the Fed Chair to convey a sense of flexibility and willingness to move relatively quickly in response to data, in particular if the economy does weaken from here. I'm also interested to hear how Chair Powell characterizes the summary of economic projections, the dot plug. Because there are times when he says, oh, he tries to dismiss it. You know, we just write this stuff on a piece of paper. It's not an authoritative plan or outlook. It's not definitive guidance. And there are sometimes when he kind of leans back on it and says, look, the committee is not prepared to work yet. It's interesting that you have very few members below the median in terms of rate cuts.

In other words, who think there can be more than two rate cuts this year. And you have nine members who think there could be none or one. And so to me, the skew is the barrier is pretty high for cutting rates right here. An investor has to assume the Fed's kind of not part of the game for the next three months because you got an end of July meeting. You got Jackson Hall. Then you're talking about September, which means good news for the economy is what you're rooting for. Good news is good news.

20 seconds. Softball. How much does the Federal Reserve even matter right now? I don't think they matter a ton right. now. It's market rates. It's like the longer term part of the Treasury curve. And because the Fed has intentionally taken itself to the sidelines and trying to make full use of this luxury of what they perceive as luxury of patients right now because they don't see any emergency on either side of their mandate. You can argue about that. But they don't see it. I would say the man behind

the curtain, but he just came around the curtain. Federal Reserve Chair, Jerome Powell. Good afternoon. My colleagues and I remain squarely focused on achieving our dual mandate goals of maximum employment and stable prices for the benefit of the American people. 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. Inflation has come down a great deal, but has been running somewhat above our 2% longer run objective. In support of our goals, today the Federal Open Market Committee decided to leave our policy interest rate unchanged.

We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments. I'll have more to say about monetary policy after briefly reviewing economic developments. Following growth of 2.5 percent last year, GDP was reported to have edged down in the first quarter, reflecting swings in net exports that were driven by businesses bringing in imports ahead of potential tariffs. This unusual swing has complicated GDP measurement. Private domestic final purchases, or PDFP, as we call them, which excludes net exports inventory investment and government spending,

grew at a solid 2.5 percent rate. Within PDFP, growth of consumer spending moderated, while investment in equipment and intangibles, rebounded from weakness in the fourth quarter. Surveys of households and businesses, however, report a decline in sentiment over recent months and elevated uncertainty about the economic outlook, largely reflecting trade policy concerns. It remains to be seen how these developments might affect future spending and investment. In our summary of economic projections, the median participant projects GDP to rise 1.4% this year

and 1.6% next year, somewhat slower than projected in March. In the labor market, conditions have remained solid. Payroll job gains averaged $135,000 per month over the past three months. The unemployment rate, at 4.2%, remains low and has stayed in a narrow range for the past year. Wage growth has continued to moderate while still outpacing inflation. Overall, a wide set of indicators, suggests that conditions in the labor market are broadly in balance and consistent with maximum employment. The labor market is not a source of significant inflationary pressures.

The median projection for the unemployment rate in the SEP is 4.5% at the end of this year and next, a bit higher than projected in March. Inflation has eased significantly from its highs in mid-2020, but remains somewhat elevated relative to our 2% longer. run goal. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.3 percent over the 12 months ending in May, and that excluding the volatile food and energy categories, core PCE prices rose 2.6 percent. Near-term measures of inflation expectations have moved up over recent months, as reflected

in both market and survey-based measures. Respondents to surveys of consumers, businesses, and professional forecasters point to tariffs as the driving factor. Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2 percent inflation goal. The median projection in the SEP for total PCE inflation this year is 3 percent, somewhat higher than projected in March. The median inflation projection falls to 2.4 percent in 2006 and 2.1 percent in in 2007.

Our monetary policy actions are guided by our dual mandate to promote maximum employment and stable prices for the American people. At today's meeting, the committee decided to maintain the target range for the federal funds rate at 4.5% to 4.5% and to continue reducing the size of our balance sheet. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook, and the balance of risks. to trade, immigration, fiscal, and regulatory policies continue to evolve, and their effects on the economy remain uncertain. The effects of tariffs will depend, among other things,

on their ultimate level. Expectations of that level, and thus of the related economic effects, reached a peak in April and have since declined. Even so, increases in tariffs this year are likely to push up prices and weigh on economic activity. The effects on inflation could be short-lived, reflecting a one-time shift in the price level. It's also possible that the inflationary effects could instead be more persistent. Avoiding that outcome will depend on the size of the tariff effects, on how long it takes for them to pass through fully into prices, and ultimately on keeping longer-term inflation expectations well anchored. Our obligation is to keep longer-term inflation expectations well anchored and to prevent a one-time increase in

the price level from becoming an ongoing inflation problem. As we act to meet that obligation, we will balance our maximum employment and price stability mandates, keeping in mind that without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans. We may find ourselves in the challenging scenario in which our dual mandate goals are intention. If that were to occur, we would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close. For the time being, we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.

In our SEP, FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate based on what each participant judges to be the most likely scenario going forward. The median projection projects participant, that the appropriate level of the federal funds rate will be 3.9% at the end of this year, the same as projected in March. The median projection declines to 3.6% at the end of next year and to 3.4% at the end of 2007,

a little higher than the March projection. These individual forecasts are always subject to uncertainty, and as I have noted, uncertainty is unusual, And of course, these projections are not a committee plan or decision. At this meeting, the committee continued its discussions as part of our five-year review of our monetary policy framework. We focused on issues related to assessing the risks and uncertainties that are relevant for monetary policy and the potential implications for policy, and communications.

Our review includes outreach and public events involving a wide range of parties, including Fed-Listons events around the country, and a research conference that we held last month. We are open to new ideas and critical feedback, and we will take on board lessons of the last five years in determining our findings. We intend to wrap up any modifications to our statement on longer-run goals and monetary policy strategy by late summer. After that, we will consider enhancements

to our suite of communications tools, including the SEC. The Fed has been assigned two goals for monetary policy, maximum employment, and stable prices. We remain committed to supporting maximum employment, bringing inflation sustainably to our 2% goal, and keeping longer-term inflation expectations well anchored. Our success in delivering on these goals matters to all Americans. We understand that our actions affect communities, families, and businesses across the country. Everything we do is in service to our public mission, and we at the Fed will do everything we can to achieve our maximum employment, and price stability goals.

Thank you. I look forward to your questions. Thank you. Colby Smith of the New York Times. To what extent has the more limited impact from tariffs at this stage on inflation changed your view on what the ultimate economic fallout will be from these policies and the timing of when they will materialize in the data? So we've had three months of favorable inflation readings since the high readings of January and February, and that's, of course, highly welcome news. Part of that just is that services, core services,

both housing services and non-housing services, have really been grinding down toward levels that are consistent with 2% inflation. So that's the good news. We've had goods inflation just moving up a bit, and of course we expect, as you point out, we do expect to see more of that over the course of the summer. It takes some time for tariffs to work their way

through the chain of distribution to the end consumer, A good example of that would be goods being sold at retailers today may have been imported several months ago before tariffs were imposed. So we're beginning to see some effects, and we do expect to see more of them overcoming months. We do also see price increases in some of the relevant categories like personal computers and audiovisual equipment and things like that that are attributable to tariff increases. In addition, we look at surveys of businesses, and there are many of those, and you do see a, range of things, but many, many companies do expect to put all or some or all of the effective tariffs through to the next person in the chain and ultimately to the consumer. Today, you know, the amount of the tariff effects, the size of the tariff effects,

their duration and the time it will take are all highly uncertain. So that is why we think the appropriate thing to do is to hold where we are as we learn more and we think our policy stances is in a good place where we're well positioned to react to incoming developments. So in terms of how we should interpret the rate cuts penciled into the SEP, is this reflecting that there's this expectation that underlying inflation will just stay well enough contained that allows the committee to eventually move ahead with those cuts? Or is it about responding to a deterioration in economic activity, let's say? I mean, how should we make sense of the forecast?

So if you look at the forecast, you will see that people do generally expect inflation to move up and then to come back down. But we can't just assume that. Of course, we don't know that. And, you know, our job is to make sure, one of our jobs, to make sure that a one-time increase in inflation doesn't turn into an inflation problem. And that, again, that will depend on the size of the effects, how long it takes for them to come in and ultimately on keeping inflation expectations anchored. Hi, and thanks, Chair Paira. Howard Schneider with Royers. If you look at the the rate path starting in December to today and adjusted over the full time horizon you've got

there. You've taken about a quarter point per year out of your projected path, and you ended a higher rate at end 27 than you were would have in the prior forecast. Is that a result of a sense that tariffs will lead to more persistent inflation? Is it a result of reassessments of where your short-term neutral rate? Is it why are you on a slower path now? So I would focus most on the nearer term, as you think as you get out to the later years, it's hard for anybody to know where the economy is going. You didn't see people moving their longer term, you know, estimate of the neutral rate, for example, at this meeting. So, and those things are probably slow moving. So I think if you look at what's happening here, since March,

this is since March, right? You see a little slower growth, just a tiny tick up, a one-tenth to tick up in unemployment, and you see inflation moving up three-tenths. And by the way, it was a similar move from the December, SEP to the March. So that's what you see. You see the effects of tariffs. I think we learned in April after the March meeting that substantially higher tariffs were likely. And then since then, the estimates of where the tariffs will be have actually moved

back down, although still at an elevated level. So we're adapting in real time. And what you see is an accumulation of individual assessments. You say in the statement that risks have diminished on that front, but the July 9th, you know, drop dead date for all the liberation day tariffs is still out there and unresolved. You've got now exchange of missiles between two Middle East adversaries with a possible U.S. involved.

But how can you justify saying that risks have diminished? So what we said was that uncertainty has uncertainty about. about the economic outlook has diminished but rains elevated. Many, many surveys say that. They do. So, and that's actually a line from the Teal book, which you can see in five years. Remember to check that.

Maybe the world will be over by. No, but if you think about it, tariff uncertainty really peaked in April and since then has come down. And that's really what that's just acknowledging. It's diminished but still elevated. It's uncertainty. So I think that's an accurate statement.

Thank you. Chris Regabert, Associated Press. There is an argument out there in favor of cutting rates more immediately. Inflation has continued to cool and is back to roughly 2% despite the tariffs. And I guess I also wanted to ask about cracks in the job market with gross hiring, slowing, concentrated in just a few industries. We received some housing data, including this morning that has been pretty weak. Do you see any concerns that, you know, the economy is weakening and that is a reason to cut rates going forward?

So we do, of course, monitor all those things. I think if you look at the overall picture, you know, what you're seeing is 4.2% unemployment and an economy that's growing at a rate, hard to know given the unusual flows in the first quarter, but it appears to be 1.5, 2%, maybe a little better than that. sentiment has come up off of its very low levels. It's still depressed. So, you know, you can point to things. The housing market is a longer run problem and also a short run problem. I don't think it's indicative of, you know, basically the situation is we have a longer run shortage of housing. And we also have high rates right now. I think the best thing we can do for the housing market is to restore price stability in a sustainable way and create a strong labor market. and that's the best thing we can do for the housing market.

You asked about the job market. Again, look at labor force participation, look at wages, look at job creation. They're all at healthy levels now. I would say you can see perhaps a very, very slow, continued cooling, but nothing that's troubling at this time. But we watch it very, very carefully. So overall, again, the current stance of monetary policy

policy leaves us well positioned to respond in a timely way to economic developments and for now and we'll be watching the data carefully. Well, just quickly on, given that, you know, there are concerns inflation will rise, but there is the alternate scenario that tariffs would create demand destruction and slow growth sufficiently and that would perhaps keep a bit of a lid on inflation. Do you see odds of that scenario, what kind of odds do you see of that scenario coming true? and how many months of cool inflation, what you need to see before, concluding that maybe that lower inflation scenario is taking place?

So this is very much the conversation we had today and yesterday. There are many, many different scenarios, many combinations of scenarios where inflation does or doesn't prove out to be at the levels we think, and where the labor market does or doesn't soften. And I think what you see people doing is looking ahead at a time of very high uncertainty and writing down what they think the most likely case is no one holds these rate paths with a great deal of conviction, and everyone would agree that they're all going to be data-dependent,

and that you can make a case for any of the rate paths, I think, that you see in the SEC. And, you know, we do this once a quarter. It's a hard thing to do, particularly at this time. But it does reflect, you know, if you see somebody writing down, you know, a rate path that involves cuts, that's them. saying, yes, I think we will get to a place more likely than not where cuts will be appropriate. And it could be a joint probability of a number of possible outcomes. Again, remember how much uncertainty we face, though.

Thank you. Mr. Chair, I wonder if you could describe for us some of those scenarios. How do you get to a place? I'm noticing that the uncertainty levels in your forecast are very high. How do you get to a place where you have the confidence in the outlook for, say, inflation and or growth or the unemployment rate? How many months does it take? you want to see in the data to get to that level of competence to actually reduce rates off the restrictive level? So it's again, it's very, very hard to say when that will happen. We know that the time will come.

It could come quickly. It could not come quickly. As long as the economy is solid, though, as long as we're seeing the kind of labor market that we have and reasonably decent growth and inflation moving down, we feel like the right thing to do is to be where we are, where our policy stance is, and just learn more. And in particular, we feel like we're going to learn a great deal more over the summer on tariffs. We hadn't expected them to show up much by now, and they haven't. And we will see the extent to which they do over the coming months. And I think that's going to inform our thinking, for one thing. In addition, we'll see how the labor market progresses. So at some point, it will become clear. I can't tell you exactly when that will be.

And, you know, meanwhile, we'll be watching the labor market very carefully for signs of weakness and strength. and tariffs for signs of what's going to happen there. And, of course, there are many developments ahead, even in the near term developments are expected on tariffs. So I think we don't yet know with any confidence where they will settle out. We have an estimate, and I think all estimates are now pretty close together, but it's getting highly uncertain. When you say estimate, estimate of the impact of tariffs on the core PCE,

is that what it is? And could you share that? Yeah, what you start with is what's the effective tariff rate over? overall, and people are managing to that. But the pass-through of tariffs to consumer price inflation is a whole process that's very uncertain. You know, there are many parties in that chain. There's the manufacturer, the exporter, the importer, the retailer, and the consumer, and each one of those is going to be trying not to be the one to pay for the tariff.

But together, they will all pay for the – together, or maybe one party will pay it all. But that process is very hard to predict. And we haven't been through a situation like this, and I think we have to be humble about our ability to forecast it. So that's why we need to see some actual data to make better decisions. We'd like to get some more data. And again, in the meantime, we can do that because the economy remains in solid condition. Nick. Nick Tamrosse of the Wall Street Journal.

Chair Powell, I guess I'm wondering if you could explain a little bit more the divergence we see in the dot plot, particularly around the 2025 rate projections. I realize this is, you know, you have one group of officials that are putting down no cuts, another that are putting down more than one. And again, recognizing that could be difficult to summarize, but is it a matter of people having a different outlook or a different reaction function, a different commitment to defending against another inflation mistake? How did that play out over the last two days?

So you're right. And this is often the case. We have a pretty healthy diversity of views on the committee. We did have strong support for today's decision and broad agreement that our policy stance does leave us in a good place. But I would point to two factors, and you mentioned them. The first is just that parties have a diversity of forecasts, and they do align with where their dots are. So if you have a higher inflation forecast, you're going to be less likely to be writing down, you know, more cuts. But remember, as we see more data, we're going to learn more about where inflation is headed. And that means when it is time to look at normal, sorry, at, you know, resuming our normalization process, the differences you see should be smaller because we'll have seen actual data. Right now, it's just a forecast in a very foggy time. So that's the first part, is forecast. Secondly, people can look at the same data, and they can evaluate the risks differently, as you know. And that includes, you know, the risk of higher inflation,

the risk that it'll be more persistent, the risk that the labor market will weaken, and people are going to have different assessments of that risk. So you put that in there, too. So those are the two ways that the two things I think that drive these things. Remember, though, as I mentioned earlier, with uncertainty as elevated as it is, no one holds these right paths with a lot of conviction. So that's really where it is. It's a function of those things.

And I think as the data come in, you should see. see those differences diminish. If I could follow up, you've said the policy is in a good place and that it's modestly restrictive. Given all the uncertainty, you just talked about, tariff levels, uncertaining around the pass-through, is that price increases versus margin compression, some of the softness that Chris talked about in labor and housing, why wouldn't it be better to have rates at a more neutral setting as the economy heads into this period of very high uncertainty? So if you just look backward at the data, that's what you would say.

That's not, we have to be forward-looking, and the thing that every forecaster, every outside forecaster, and the Fed is saying is that we expect a meaningful amount of inflation to arrive in coming months. And we have to take that into account. So I think a backward-looking look would lead you to a neutral stance, but we can't, we have to look at that. And because the economy is still solid, we can take the time to actually see what's going to happen. It's, you know, There's a range of possibilities on how large the inflation effects and the other effects are going to be. So we'll make smarter and better decisions if we just wait a couple of months or however long it takes to get a sense of really what is going to be the pass-through of inflation and what's going to be the effects on spending and on hiring and all those things.

Michael McKee from Bloomberg Radio and Television. Your friend down at 1600 Pennsylvania Avenue continues to lob insults in your direction. I'm wondering, given how that the Supreme Court has maybe carved out the Fed from some of the legal implications of that, whether this is just noise that the markets and everybody should ignore until your term is up, or whether you worry that it could lead to more pressure on confidence on Wall Street, on consumers, about the outlook for the economy. Okay. From my standpoint, it's not complicated. What everyone on the FOMC wants, it's a good, solid American economy with strong labor market and price stability. That's what we want. We think our policy is well positioned right now to deliver that and to be able to respond in a timely way as the data lead us around. The economy's been resilient, and part of that is our stance. And, again, we think we're in a good place on that to respond to significant. economic developments. That's what matters. That is what matters to us. Pretty much, that's all

that matters to us. I need to ask, assuming you are not reappointed, would you stay on as governor when your term as chair? I'm not thinking about that. I'm thinking about this. Thanks, Mr. Chairman. I guess with workplace raids increasing, picking up significantly, what kind of effect would that have on the labor market? Sorry, with what picking up? Workplace raids. Ah, immigration. So you're asking immigration? Yeah.

You know, I wouldn't want to speculate. One way to get at that from an economic standpoint, we of course don't comment on immigration policy. It's not ours to make or comment on. But what you see is an unemployment rate that has been really solid and at a low level, not really increasing. It's been in a good range and well within the range of mainstream estimates of maximum employment. And that means, part of that is that labor demand and labor supply are kind of moving down at the same rate. Labor demand is softening. You see that in job creation, but it's still kind of at a healthy level.

And labor supply is diminishing because the immigration numbers that we see are much lower than they were. So those two factors supply and demand, that's what has kept the unemployment rate in a reasonably stable place. Okay, thanks. The other thing I wanted to follow up on is if you could elaborate on the potential changes to the SCP that you suggested were part of the framework review, I think? So the framework review really has two tracks, right? The first tract is our policy framework that is reflected in the consensus statement. And we've said that we would finish that and announce it by the end of the summer. So we're well along in that process.

We've had the meetings that we need to have and we're now going to be going into pardon me, into discussions about, you know, specific changes to language. So that's the framework part of it. The second part of it is our communications, tools, and practices. Pardon me. And that part comes next. Okay, that's what we're going to do in the meetings this fall. Actually, what we did at this meeting, though, is we sort of prepared the ground for that.

We had a meeting where we talked at a high level about a number of ideas. The SECP is part of it, you know, many, many other ideas. It's sort of how do we think our communications can be improved? There are a number of ideas. People offered a really, it was a great conversation, a number of ideas. But we're going to look at those with staff briefing and a lot of thought in the fall. And I would say when it comes to changing communications, you know, I would only do, I would only support things, really, that only implement things that have very broad support.

And also, you want to be really careful because, I think our communications are pretty well received. They're not broken. So more is not necessarily better, but better is better. So we're going to be looking at ways to do things that will improve the clarity of what we do for the benefit of the public. Thanks, Chair Powell. Kelly O'Grady, CBS News. You're famously known as the guy that makes decision based on data instead of speculation. You've said today, in the inflation data is in a good place. We don't know how tariffs are going to, packed prices going forward. That's uncertain. But I've got to go back to the last time that you cut rates in December, and there was still the what if of tariffs. So what made you feel comfortable cutting then when inflation was higher than where it is today, and you didn't cut today? Well, the forecast for inflation in December was two and a half. Core PCE for 2025. The forecast was two and a half percent, which is a good inflation forecast. I think what we've learned is that,

and this was long before we had any idea of what the actual policies would be, we've learned that tariffs are going to be substantially larger than forecasters generally thought. And, you know, our forecasts are generally not particularly different from those of other, you know, well-resourced forecasting operations. So what we learned, and particularly in April, was that very substantially larger tariffs were coming and that that would mean higher inflation. That's what happened. And so you know, you see, you saw two and a half percent forecast in December. You saw 2.8 percent in March and you see 3.1 percent now. So it's six-tenths higher inflation for 2,025. And that's, that's a big part of the change. And that's due to the effects of the tariffs that are,

you know, we don't know where they're going to land, but it's pretty apparent they're going to land higher than outside forecasters. We're really guessing. at the end of last year. My follow up to that, consumers, right, we're looking for relief on rates when it comes to mortgages, car loans, small businesses, want to take out more manageable loans.

When you look at the cumulative inflation over the past five years, prices have risen over 20 percent. It's been a rough road. So what is the tipping point then for the wait and sea approach in terms of how much it's going to help versus when it hurts the American consumer?

Well, I mean, we're trying to restore price. The best thing we can do for the public that we serve is restore price stability. If we can, and we will, restore price stability, meaning 2 percent inflation on a durable, sustainable basis. That and also maximum employment. If we restore those things, that's the best thing, and that is our goal. The best thing we can do for the American people, for households and businesses, that is the ultimate thing that we can deliver.

And they can make their decisions without having to think about inflation all the time. So in the meantime, we have to keep rates high. to get inflation all the way down. They're not very high. Let's be honest. I would say policy is modestly or moderately, probably modestly now restrictive. If you look at the economy, it's not performing as though it were performing under very strict monetary policy, very restrictive monetary policy. So I would say probably modestly restrictive.

And so what it will take is confidence that inflation is coming down. Now, I would say without tariffs, that confidence would be building because if you see what, what's happening with non-housing services and housing services, which are the other two big pieces other than goods, those are coming down really nicely now. So I think we have to learn a little more about tariffs. I don't know what the right way for us to react will be. I think it's hard to know with any confidence how we should react until we see really the size of the effects. Then we can start to make a better judgment.

So that's what we're doing. And I think we can take the time to do that because unemployment is 4.2 percent. wages are moving up, real wages are moving up at a healthy clip now. And inflation is 2.3% headline inflation over a 12-month basis. So it's a good economy and a solid economy with decent growth. Thank you, Chair Powell. So you're saying that uncertainty has come down, the economy is moving at a solid pace, inflation has come down over the past three months,

and this is all moving in the right direction. So are you indicating here that Americans should expect some sort of economic pain in the second half of the year? I'm not saying that at all. You know, from our standpoint, what I can say is that the U.S. economy is in solid shape. Inflation has come down. The unemployment rate remains at 4.2%.

As I mentioned, real wages are moving up. It's a good job creation is at a healthy level. Unemployment, again, as I said, low. Labor First participation in a good place. And what we're waiting for to reduce rates is to understand what will happen with really the tariff inflation. And there's a lot of uncertainty about that. Every forecaster you can name, who, you know, who is a professional, you know,

forecaster with adequate resources and forecasts for a living is forecasting, you know, pretty significant. Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs because someone has to pay for the tariffs. And it will be someone in that chain that I mentioned between the manufacturer, the exporter, the importer, the retailer, ultimately somebody putting it into a good of some kind or just the consumer buying it. You know, and all through that chain, people will be trying not to be the ones who pick up the cost, but ultimately the cost of the tariff has to be paid.

And some of it will fall on the end consumer. We know that because that's what businesses say. That's what the data say from past. So we know that's coming. And we just want to see a little bit of that before we make judgments, prematurely. And follow up on that. So you spent years ago talking about how your data dependent and be a little more direct on this. Now you're making decisions looking forward. Doesn't the data you're seeing today indicate there should be a rate cut? No, I mean, your monetary policy has to be

forward-looking. That is elementary. You've got to be looking. I always talk about the incoming data, the evolving outlook, and the balance of risks. We say that over and over and over again, right? So So it's always forward-looking. You know, if you know at the very beginning of the pandemic, you know, we cut rates to zero immediately. Nothing had happened. We just knew that it was going to be really bad, right? So we took very aggressive, forward-looking because we knew things were going to be unusually difficult. So, of course, this is something we sort of know is coming.

We just don't know the size of it. And again, the economy seems to be in solid shape. So the labor market's not crying out for a rate cut. Businesses, you know, we're in a bit of shock after April 2, but you see business sentiment. You talk to business people now. There's a very different feeling now that people are working their way through this, and they understand how they're going to go. And it feels much more positive and constructive than it did three months ago, let's say.

So, again, we think that our current stance of monetary policy is in a good place. Amara. Thank you. I'm Mouquet with Bloomberg. Chair Powell, in February, you told Congress that the Fed is, quote, overworked, maybe not overstaffed. Then in a memo to staff in May, announcing a deferred resignation program at the Fed, you said you wanted to ensure that the Fed was, quote, right-sized. Those two statements appear to be at odds with one another.

Could you explain what changed in the roughly three months between those statements that made you decide that staff levels at the Fed should decline? I don't see them at all as intention. You know, so I was asked, is the Fed overstaffed? And I said, no. And I sort of said, as a pun, overworked, but not overstaffed. People do work extremely hard at the Fed. And I know they work hard at Bloomberg, too. But we do. We work hard. But I would say this. So we are careful stewards of public resources. And sometimes you need to show that. So there have been several times in our history, modern history, where the Fed has said, you know what, we're going to do a buyout. We're going to show the public. We're going to demonstrate that we are good stewards of public resources. So we thought, and I thought, that this is a time when we can, you know, we grow at about, our headcount is growing at about 1% a year. So over the course of a couple of years, we're doing a careful scrub of the board and all the reserve banks, and we're going to find 10% of employees who can do something else, where we can streamline our operations,

and we think we can get there in a year, in a couple of years. We think we can do that. And we think this is without taking risk to carrying out our critical missions. So this is something you do very carefully, thoughtfully, and you do it, again, respecting that we have critical missions to carry out. I've had experience, a lot of experience in my prior careers with head count reductions and things like that. And this is how you do it professionally. You do it carefully, thoughtfully, with a lot of planning, and you do it over a period. period of time. I think it's, I think the Fed will be fine. I think no one will notice any decline in our ability to carry out our missions. And I think it's just us wanting to demonstrate to the

public that we are actually good stewards of their, of their resources. We're effectively wiping out 10 years of headcount growth with this. So, I mean, we just, we wanted to show that, you know, that we're good stewards. How is progress on reducing headcount going so far? Are you on track to meet the goal? We're just at the very beginning. As you know, we're doing a buyout program. We're going to hit that goal. I think many organizations find that they can do this. You don't want to do it every year or anything, but you can do it at intervals, and you wind up not interfering with your ability to perform your jobs. Claire.

Chair Powell, Claire Jones from the Financial Times. As you're no doubt aware, the Senate Finance Committee has tabled its version of the reconciliation bill this week, and I was wondering if you could tell me a little bit about the tenor of the debate at the FOMC over the past few days on fiscal policy and the degree to which that influenced people's projections for 2026 and beyond. Thank you. Yeah, so, you know, we don't sit around in debate or really discuss.

We take fiscal policy as fully exogenous, And so we actually, you know, really didn't talk about the bill or the contents of it. It's still evolving. You know, when it gets closer, it's, remember also we have a very, very large economy, and the effects will be at the margin. And, you know, I expect that they'll, they may already be in, but they will be in by the next meeting. We'll make an estimate. But it's not a major thing.

and it's nothing that we discuss. It may have been mentioned a couple of times but as something that's coming in. But I think the outcome is, you know, we don't know the outcome yet there, so hard to be real specific. Thanks, Chair Powell. Neil Irwin with Axios.

There have been some cutbacks in economic statistics collection in the last few weeks. Worry is that long-running problems around funding and response rates may be getting worse. How much is this concern on your radar? How much confidence do you have that the gauges you're watching to assess the economy are reliable right now?

You know, two things. One, the data we get right now, we can do our jobs. I'm not concerned that we can't do our jobs. That's not the point. The point really is that we are starting to see, you know, layoffs and important gatherers of data are saying that they're having to cut back on the size of their surveys. That's going to lead to more volatility in the surveys. I think we should take a step back.

And, you know, from our standpoint, and I think the standpoint of business, and governments and everyone. Having really good data on the state of the economy at any given time is a huge public good. It just doesn't help the Fed. It helps the government. It helps Congress. It helps the executive branch. More importantly, really, it helps businesses.

They need to know what's going on in the economy. The United States has been a leader for many, many years in this whole project of measuring and understanding what's happening in our very large and dynamic economy. And I hate to see us cutting back on that because it is a real benefit to the general public that people in all kinds of jobs have the best possible understanding of what's happening in the economy and hence what's likely to happen. It's very hard to measure what's going on in the U.S. economy. If you read, there was a book called, well, it's really remarkable how many things you need to understand to estimate U.S. GDP. very, very difficult. And it's so important that we get it right. I just would say it's not a place to, to, I would want to keep investing in that, you know, for the good of the general public. Victoria.

Hi, Victoria Guida with Politico. So you're conducting this monetary policy strategy framework review, but next year we're supposed to have a new Fed chair, and I'm wondering if that affects at all the way that you're approaching this. How do you ensure that this framework will actually be durable? You know, the framework goes back to, the framework document goes back to 2012, and it's the committee's document. It's not like we're going to invent a brand new way to do things. It's, it's been an evolving document. So it shouldn't depend on who the chair is at all. It should

depend on what's happening in the economy and what the committee wants to do. So it isn't really tied to any particular chair. And, you know, we used to, we used to renew it every year. Now we do it every five years. So, but I don't think anybody, I've never heard anyone raise this issue that, you know, a new chair might want to come in and go in a completely different direction. I really I really don't think that's right, but that's not going to be up to me to decide. Is that affecting at all that you're consulting with? Not at all. Not in any way.

Thank you. Chair Powell, Matt Egan from CNN. Relatively low gas prices this year have helped drive down inflation in recent reports, but that trend is starting to reverse, given the crisis in the Middle East. How are you thinking about how the Israel-Iran conflict will impact the economy, especially inflation and what lessons were learned during the 2022 period when another conflict the Russia-Ukraine war sent oil and gas prices skyrocketing. So of course we're watching like everybody else is what's going. I really don't have any comment on that. You know, possible that we'll see higher

energy prices. What's tended to happen is when there's turmoil in the Middle East, you may see a spike in energy prices, but tends to come down. Those things don't. generally tend to have lasting effects on inflation, although, of course, in the 1970s, they famously did, because you had a series of very, very large shocks. But we haven't seen anything like that now. The U.S. economy is far less dependent on foreign oil than it was back in the 1970s. So, but there. A quick follow-up. I've just got to ask you about artificial intelligence. Some technology executives have recently been warning that AI could,

wipe out a large chunk of entry-level jobs and significantly increase the unemployment rate. I'm wondering how concerned you are, if at all, about the threat that AI poses to employment. So this is the question. The question really is will AI be more augmenting labor or replacing labor? And I wouldn't, we all see those announcements including one today. I wouldn't, you know, overread a couple of data points because, you know, AI should be creating jobs at the same time. It may be replacing, it may be doing both. Anyone who's done any work with it with AI will have been a little bit stunned and how capable it is. And it's just a different thing. So I think this is something that

certainly has transformational potential. And probably we're in the very early stages of it. You know, they say what you're seeing now compared to what you'll see in two years is going to be very different and even more effective. So I think it's really hard to know. You know, of course, there are optimists who feel like it's going to make everybody much more, you know, much more productive. And there are those who think it's going to replace an awful lot of jobs right across the income spectrum, you know, white collar, blue collar and everything. So I just don't know. We don't have a house view on that. But this is going to be a very important question for some time.

Great. Thank you. Greg, Rob, from MarketWatch. I was wondering if you could step back a little bit, Chair Powell. You know, there's a spate of articles and a lot of op-eds now in the newspapers saying that the U.S. economy and the global economy is going through this profound change, you know, akin to the end of the Breton Woods era in the 1970s. And don't you owe the American people like some sort of like explanation for what we're going through?

I mean, I noticed earlier this month when you talked about Bretton Woods a little bit, and you said that Bretton Woods, the Fed staff had to like change how they've, the dollar, movements for the dollar wasn't impacting the economy. Are we going through something like that now that, you know, are you having to change how you do monetary policy? Is it that fundamental a change underway? Thanks. It's certainly a time of real change. You know, from a geopolitical standpoint, from a trade standpoint, from an immigration standpoint, you see this not just here, but everywhere.

So there's quite a lot going on. It doesn't change the way we do monetary policy in the near term. I mean, and it doesn't change our objectives or what we need to do. And, you know, these things are not really our issues. They're really issues for elected governments. All of those issues are really for elected governments. But there's no question. It's a time of real change and very hard to see where that goes. You know, will it be, there have been many, many things written about how it's going to be a more inflationary time?

That's possible. It's not guaranteed. You know, AI could cut in the very other direction. AI could make people much more productive and pushing the other direction. I don't know, though. So, but you're right. But honestly, our focus is a much more practical one, and that is how do we keep inflation? low and employment high in the near term. That's really what we're about. Mark. Hello, Chairman Powell. Mark Hamrick with Bankrate. What is the view about the growing amount of slack in the job market, including the softening in payrolls, the forecast of a modest rise in the unemployment rate, and the ability of workers to demand wage hikes or not

in this environment where you have inflation surging? I don't you don't see you don't really see unemployment going up you don't see increased slack really I mean at the margin remember you're at 4.2% unemployment that that was for many many years that was a extremely low level it happens to have come up off of an even lower level as we came out of the pandemic we were as low as 3.4% but 4.2% is probably at the low end of estimates of the longer run you know sustainable level of natural rate of unemployment so I I wouldn't, I guess I wouldn't agree with that. Also, in terms of wages, you know, real wages after inflation have been moving up sort of more than was consistent with 2% inflation. They're still moving up at a healthy clip, and I think much more consistent with 2% inflation given, given a reasonable assessment of trend productivity. So it's a pretty good labor market. You know, you're right that the level of job creation has come down, but so has the supply of workers. change in the supply, the new supply. So you've seen the unemployment rate remain pretty stable at

4.2. It's been as high as 4.3, but, you know, those are, there's a good number. So it's a pretty good labor market. The thing is, there's a more concerning thing is there's not, they're not a lot of laughs, but they're not a lot of job creation. The number, if you're out of work, it's, it's hard to find a job, but there are very few people are being laid off at this point. So that's a, that's a, that's a, an equilibrium we watch very, very carefully. Because if there were to be significant layoffs and the job finding rate were to remain

this low, you would have an increase in unemployment fairly quickly. But that hasn't happened. It really hasn't happened. So the U.S. economy has defied all kinds of forecasts for it to weaken, really over the last three years. And it's been remarkable to see

just again and again when people think it's going to weaken. Now, eventually it will, but we don't see signs of that now. Go to Jean for the last question. Hi, Chair Powell, Gene Young with M&I Market News. There's been a lot of talk about cuts. I wanted to ask you, why do you think there are no forecasts for rates to rise or even to stay where they are next year, given that the projection for inflation is to rise to 3 percent?

And there's a lot of skeptic, there's some skepticism over whether those price hikes will be a one-time event. So there are a number of people on the committee who wrote down no cuts this year, but some cuts next year. So look, I think, you know, people are writing down their most likely path, right? They're not saying there's zero possibility of other things. Really, really it's think of it as the least unlikely path in a situation like this where uncertainty is very high. I think, again, people write, they write down their rate paths and they do not have like a really high conviction that this is exactly. what's going to happen over the next two years. No one feels that way about their rate path. They feel like, what am I going to write down? I mean, what would you write down?

It's not easy to do that with confidence. So I would just say it that way. We don't rule things in or out. Certainly, a hike is not the base case at all. It's not something people are writing down. But in the meantime, we do the best we can with these forecasts. And I think they're representative of, you know, of the different forecasts and different reaction functions that people on the committee have. So thank you very much. Thanks.