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As expected, the Fed held rates steady. But Powell is uncertain about what the Fed is doing.

FOMC Statement

Please consider the Federal Open Market Committee (FOMC) Statement on September 20, 2023, emphasis mine.

Recent indicators suggest that economic activity has been expanding at a solid pace. Job gains have slowed in recent months but remain strong, and the unemployment rate has remained low. Inflation remains elevated.

The U.S. banking system is sound and resilient. Tighter credit conditions for households and businesses are likely to weigh on economic activity, hiring, and inflation. The extent of these effects remains uncertain. The Committee remains highly attentive to inflation risks.

The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. In support of these goals, the Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent.

Key Takeaways

• Inflation elevated
• Tighter credit weighs on activity
• The impact of tighter credit on inflation is uncertain.
• The committee is highly attentive to inflation risks

The rest of the statement is typical boilerplate about monitoring inflation and balance sheet reduction.

Warning Shot

The above takeaways about uncertainty and inflation risk is a clear warning shot that the Fed will hike more if warranted.

The Inflation Front

The Fed is right to be concerned about inflation.

Unions are winning huge contracts, manufacturing productivity is in the gutter, and Biden’s energy policies are highly inflationary.

For discussion of productivity, raises, and energy policies, please see Does the UAW United Auto Workers Union Merit a Huge Raise?

Also, note the energy crunch. The Demand for Diesel and Jet Fuel Soars But Refining Capacity Sinks.

Refining capacity is down thanks to the Biden administration’s attack on oil, and the unwarranted push for more EVs before the infrastructure is even in place.

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