By Warren Hrung
ABA DataBank
Along with the announced reduction in federal funds rate target range by 25 basis points to 4.25-4.5 percent, the Federal Reserve’s Summary of Economic Projections following the December 17-18, 2024, Federal Open Market Committee meeting suggested a reduction in the federal funds rate by the end of 2025 that was roughly half the reduction suggested in the projection following the September 17-18, 2024, FOMC meeting. Financial markets reacted very negatively to the new projection but then rebounded somewhat just two days later following a personal consumption expenditures price index reading that was below forecasts (that is, the S&P 500 stock index fell 2.9 percent on December 18 and then rose 1.1 percent on December 20).
Given the uncertainty surrounding future Fed interest rate policy and the FOMC holding rates steady at its January 28-29, 2025, meeting, FOMC press conferences and Fed official speeches may provide some insight into the path of policy rates going forward. This ABA DataBank post examines the seemingly purposeful phrases that were employed during the Fed’s recent interest rate increase cycle, as the Fed attempted to affirm its commitment to raise rates and tighten financial conditions to bring down inflation. Similar phrasing in future Fed communications could provide a signal to market participants and the broader public that expectations for interest rate policy need to be adjusted.
FOMC press conferences
Fed Chair Jerome Powell conducts a press conference following each FOMC meeting. After the Fed’s recent interest rate increase cycle began after the March 15-16, 2022, meeting, it was unclear how committed the Fed would be to lowering inflation from its peak of 7.2 percent back down to its 2 percent target, since doing so was expected to result in a deep recession, given the experience during the early 1980s.
The FOMC press conferences were an opportunity to reinforce the Fed’s commitment to raising rates and keeping them at a level high enough to lower inflation to the 2 percent target. Starting with the press conference after the September 20-21, 2022, meeting, Powell used the phrase “a ways to go” in describing the future path for interest rate increases. He not only used this phrase four times at the November 2, 2022, press conference, but this phrase or “long way to go” was used in every following press conference through the January 31, 2024, press conference. After no mention of this phrase by Powell at the March 20, 2024, press conference, the last use of “a ways to go” was at the May 1, 2024, press conference. Overall, this phrasing was used at least once by Powell in 12 consecutive press conferences and 13 times in total over the course of the recent interest rate increase cycle.
Fed governor speeches
Speeches by Fed officials are another outlet that could be used to signal policy intentions and adjust expectations. In addition to the FOMC press conferences, Powell used the phrase “long way to go” to describe the process for getting inflation back down to target at four speeches from November 2022 to November 2023 (here, here, here, and here).
In addition to Powell, Governor Christopher Waller used some variation of “ways to go” at three consecutive speeches in late-2022 and early-2023 (here, here, and here) to describe the fight against inflation. Governor Lisa Cook used “further to go” at a speech on November 20, 2024, and another speech on January 6, 2025. No other Fed governor used similar phrasing in the context of battling inflation over the course of 2022 through early 2025.
Given Cook’s late-November 2024 speech, it is notable that Waller used the phrases “some distance to go” and “a ways to go” at a December 2, 2024, speech just two weeks later, but here in the context of lowering the federal funds rate. (Note: speeches by regional Fed presidents were not examined in this analysis.)
Conclusion
Now that the Fed has embarked on an interest rate reduction cycle with the September 17-18, 2024, FOMC meeting, each major economic data release will be dissected for its impact on any further rate reductions. At FOMC press conferences and speeches, Powell and other Fed governors could try to communicate their intentions by adopting similar phrasing to what was used while policy rates were increasing. If variations of “a ways to go” are used at FOMC press conferences and official speeches in the context of lowering interest rates, this could be interpreted as an effort by the Fed to signal that interest rates will fall faster and further than anticipated by market participants. If this phrasing is used in the context of reducing inflation to the 2 percent target, the Fed may be signaling that interest rates will remain at a higher level for longer than expected.
For additional research and analysis from the ABA’s Office of the Chief Economist, please see the OCE website.
