Here’s a breakdown of the provided text, focusing on the uncertainties surrounding duties and the Fed‘s viewpoint:
Uncertainties about Duties:
Decreased but still high: The press release indicated a decrease in uncertainty regarding duties, but the July note simply stated it remained “high.”
Impact on inflation: Powell explained that “three or four tenths of ‘core’ inflation” are derived from duties.
Evolving government policies: Changes in government policies related to duties are constantly evolving,making their economic effects uncertain. Reflection on prices: Higher duties are starting to be reflected more clearly in the prices of some goods.
Overall effects to be evaluated: The overall effects of duties on economic activity and inflation are still being assessed.
Potential for short-lived or persistent inflation:
Short-lived hypothesis: A reasonable assumption is that the inflationary effects might be temporary, a one-off shift in the price level. Persistent risk: However, there’s also a possibility that the inflationary effects could be more persistent, which is a risk that needs careful evaluation and management.
Fed’s role: The fed’s task is to keep long-term inflation expectations anchored and prevent temporary price increases from becoming a continuous inflationary problem.
Waiting for more information: The Fed is in a good position to gather more information on the economy’s likely trend and the balance of risks before changing its “moderately restrictive” monetary policy.
Estimates Towards Stability:
Trump’s commercial policy becoming clearer: Trump’s commercial policy is becoming more defined, and the Fed is aware of this.
Dynamic negotiation period: The period between Fed meetings has been very dynamic with many events in commercial negotiations.
stabilization point unclear: It’s still unclear where things will eventually stabilize.
Estimates on duty levels stabilizing: Estimates (both internal and external) on the probable effective level of duties are no longer changing significantly.
Many uncertainties remain: Despite some clarity on duty levels, many uncertainties still need to be resolved.
Process not nearing an end: The Fed doesn’t feel close to the end of this process and anticipates more developments in the coming months.
“Unusual” situation: The situation is described as “unusual” because risks exist for both the employment and inflation mandates. Supply-side shock: This is characterized as the nature of a “supply-side shock.”
Dissenting votes: The presence of two dissenting votes is noted as not especially new or traumatic for central banks.
Healthy Economy:
Economy in good health: Similar to June, the economy is perceived as being in good health and not requiring immediate interventions.
Low unemployment and solid labor market: The unemployment rate remains low, and labor market conditions are solid.
Inflation moderately high: Inflation is described as “moderately high,” slightly above the Fed’s 2% long-term goal.
Reason for maintaining rates: This aspect of moderately high inflation is the reason for maintaining interest rates at current levels.
Current monetary policy adequate: The Fed believes its current monetary policy stance is sufficient to protect against inflation and its associated risks.
New attention to employment risks: A new element is the Fed’s increased attention to risks related to employment, which is the other pillar of its mandate.
Information gathering in coming months: The Fed will receive a significant amount of information in the coming months.
In essence, the text highlights the Federal Reserve’s cautious approach in the face of evolving trade policies and their uncertain impact on inflation. While some aspects of the trade situation are becoming clearer, the overall effects and the potential for persistent inflation remain key concerns. The Fed is prioritizing gathering more data before making any significant shifts in its monetary policy,which is currently deemed “moderately restrictive” and adequate for the existing economic conditions.
