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Continue to Decline in this less dynamic and somewhat softer labor market, the downside risks to employment appear to have risen in recent months. Inflation has eased significantly from its highs in mid 2022, but remains somewhat elevated relative to our 2% longer run goal. Estimates based on the Consumer Price Index suggest that total PCE prices rose 2.8% over the 12 months ending in September and that excluding the volatile food and energy categories, core pce prices rose 2.8% as well. These readings are higher than earlier in the year as inflation for goods has picked up. In contrast, disinflation appears to be continuing for services. Near term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs as reflected in both market and survey based measures. Beyond the next year or two or so, however, most measures of longer term expectations remain consistent with our 2% inflation goal. 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 lower the target range for the federal funds rate by a quarter percentage point to 3 and 3/4 to 4%. Higher tariffs are pushing up prices in some categories of goods resulting in higher overall inflation. A reasonable base case is that the effects on inflation will be relatively short lived, a one time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed to. Our obligation is to ensure that a one time increase in the price level does not become an ongoing inflation problem. In the near term, risks to inflation are tilted to the upside and risks to employment to the downside. A challenging situation There is no risk free path for policy as we navigate this tension between our employment and inflation goals. Our framework calls for us to take a balanced approach in promoting both sides of our dual mandate. With downside risks to employment having increased in recent months, the balance of risks has shifted Accordingly, we judged it appropriate at this meeting to take another step toward a more neutral policy stance. With today's decision, we remain well positioned to respond in a timely way to potential economic developments. We will continue to determine the appropriate stance of monetary policy based on the incoming data, the evolving outlook and the balance of risks. We continue to face two sided risks in the Committee's discussions at this meeting, there were strongly differing views about how to proceed in December. A further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course. At today's meeting, the Committee also decided to conclude the reduction of our aggregate securities holdings as of December 1st. Our long stated plan has been to stop balance sheet runoff when reserves are somewhat above the level we judge consistent with ample reserve conditions. Signs have clearly emerged that we have reached that standard in money markets. Repo rates have moved up relative to our administered rates, and we have seen more notable pressures on selected dates along with more use of our standing repo facility. In addition, the effective federal funds rate has begun to move up relative to the rate of interest on reserve balances. These developments are what we expected to see as the size of our balance sheet declined and warrant today's decision to cease runoff. Over the three and a half years that we've been shrinking our balance sheet, our securities holdings have declined by $2.2 trillion. As a share of nominal GDP, our balance sheet has fallen from 35% to about 21% in December. We'll enter the next phase of our normalization plans by holding the size of our balance sheet steady for a time. While reserve balances continue to move gradually lower as other non reserve liabilities such as currency keep growing, we will continue to Allow agency securities to run off our balance sheet, and we'll reinvest the proceeds from those securities in treasury bills, furthering progress toward a portfolio consisting primarily of treasury securities. This reinvestment strategy will also help move the weighted average maturity of our portfolio closer to that of the outstanding stock of treasury securities, thus furthering the normalization of the composition of our balance sheet. The Fed has been assigned two goals for monetary policy, maximum employment and stable prices. We remain committed to supporting our maximum employment, bringing our 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. 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. Nick. Nick Timoros of the Wall Street Journal Are you uncomfortable with how market pricing has assumed a rate cut is a foregone conclusion at your next meeting? Well, I, as I just mentioned, a further reduction in the policy rate of December meeting is not a foregone conclusion, as I've just said. So I would say that that needs to be taken on board. We had, you know, just say this, 19 participants on the committee. Everyone works very hard at this and takes their obligations to serve the American people very seriously. And at a time when we have tension between our two goals, we have, you know, strong views across the committee. And as I mentioned, there were strongly differing views today. And the takeaway from that is that we haven't made a decision about December. And you know, we're going to be looking at the data that we have, how that affects the outlook and the balance of risks. And I'll just say that you and some of your colleagues have framed last month and maybe today I won't put words in your mouth, there's a risk management exercise. At what point do you conclude that you've taken out enough insurance? Are you looking for some kind of improvement in the outlook? Or could this unfold along the lines of last year where you made a sequence of adjustments and waited to gather more information? So the way we have been thinking, well, I've been thinking about it is the, the risks to the two goals. For a very long time, the risk was clearly of higher inflation. And then that has changed now. And as we saw the, particularly after we saw, after the July meeting, we saw downward revisions in job creation. We saw a very different picture of the labor market and suggested that there were higher downside risks to the labor market than we had thought. And that suggested that policy, which we had been holding at a, I would say modestly, other people would say moderately restrictive level, needed to move more in the direction over time of neutral. If the two goals are sort of equally at risk, then you ought to be at neutral because one of them is calling for you to hike and one of them is calling for you to cut. So if that, if that got back into balance, then you'd want to be roughly at neutral. So in that sense, it was a risk management. And I would say the same about today, sort of the same logic. But as I mentioned, going forward is a different thing. Claire? I'm Claire Jones, Financial Times. Thank you for taking this question. We've just heard from you that the discussion in December and the conclusion of the discussion is not a foregone conclusion. I'd like to just dig into that a little bit more about what sort of arguments were brought up. Was there any consideration, for instance, of the investment we're seeing in AI and some of the generation of household wealth through rises in stock prices related to the AI boom? Thank you. You know, I wouldn't say that's a, that's, that's a factor in everyone's assessment of the economy. I wouldn't say it's the driving factor, I don't think for anybody. You know, I guess I would say it this way once again. I would just point out that we have the situation where the risks are to the upside for inflation and to, to the downside for employment. We have one tool. It can't do both of those. You can't address both those at once. You've got a very different situation. So you have some people, people have different forecasts, right? So they'll forecast faster or slower progress on one or the other. And they also have different levels of risk aversion. And some will be more averse to inflation overruns and some will be more averse to underruns of employment. And so you put that together and as you can see from the sep and from the public discussion that goes on between the meetings, when participants go out and talk, they're very disparate views. And they were reflected in strongly differing views in today's meeting, as I pointed out in my remarks. And that's what leads me to say that, you know, that we haven't made a decision about, about December. You know, I always say that it's a fact that we don't make decisions in advance, but this is, I'M saying something in addition here is that it's not, it's not to be seen as a foregone conclusion. In fact, far from it. Can I just ask a quick follow up on qt? How much of the fund impressions we've seen in money markets are related to the US treasury issuing more short term debt? That could be one of the factors. But the reality is we've seen the things that we've seen higher repo rates and federal funds rate moving up. These are the very things that we look for. We actually have a framework for looking at what the place we're trying to reach. What we said for a long time now is that when we feel like we're a little bit or a bit above what we consider a level that's ample, that we would freeze the size of the balance sheet. Of course, reserves will continue to decline from that point forward as non reserve liabilities grow. So this happened some of it, some things have been happening for some time now showing a gradual tightening in money market conditions. Really in the last, call it three weeks or so, you've seen more significant tightening and I think a clear assessment that, that we're at that place. The other thing is, you know, we're, we're, the balance sheet is shrinking at a very, very slow pace now. We've, we've reduced it by half, twice. And so there's not a lot of benefit to be, you know, to be holding on for to get the last few dollars because you know, again, the balance sheets reserves are going to continue to shrink as non reserves grow. So, so you know, there was support on the committee as we thought about it, to go ahead with this and announce effective December 1st that we will be freezing the size of the balance sheet. And the December 1st date gives the markets a little bit of time to adapt. Colby, thank you. Colby Smith with the New York Times. So much of the rationale for cutting interest rates even as inflation moves away from the 2% target seems to be, you know, that there are these mounting downside risks to the labor market. But if those don't materialize and the labor market either stabilizes around current employment levels or even starts to strengthen somewhat, how would that change your perception of how much interest rates need to fall from here? Would you then be a bit more concerned about underlying inflation and the possibility of second round effects from tariffs? Yeah, I mean in principle, if, if you were to see data that suggested the labor market strengthening or even that it's stabilizing, you know, that would certainly play into our decisions going forward. So, and we do have, you know, we get some data. The labor market is a place where we get, for example, we get the state level data on initial claims which, which are sending a sort of a signal of more of the same. We also get job openings and we'll get lots of survey data. We'll get the beige book and things like that. So we'll have a, we'll have a picture of what's going on in the labor market. And you know, the fact that we're not seeing an uptick in claims or a downtick really in openings suggest that you're seeing maybe continued very gradual cooling, but nothing more than that. So that does give you some comfort. But if this shutdown lasts a while longer and you don't have that data in hand, I'm just wondering how that hinders the committee's ability to assess the state of the labor market and make the right policy decisions. And also how much is that factoring into the debate about December?
