The results of the Federal reserve meeting and the subsequent press conference are the talk of Wall Street today. For anyone who missed the press conference, here are some of the highlights.
On Possible Rate Cuts
As Chairman Jerome Powell stepped up to the podium, he admitted that there are worrying trends in the global economy. But he clarified that it was not time to overreact: “some of these developments have been of quite recent vintage, and so we do expect that we’ll be learning a lot more on all of these issues in the near term, and that’s our focus.”
While rate cuts seem more and more likely, Powell explained that it is never wise to react too soon. “We want to see and we want to react to developments and trends that are sustained, that are genuine, and not react just to data points or just to changes in sentiment, which can be volatile. At the same time, we’re quite mindful of the risks to the outlook, and are prepared to move and use our tools as needed to sustain the expansion.”
Overall, the temperature of the Fed members was more varied than it had been in years past. Powell mentioned multiple times that eight members had written rate cuts in their suggestions, while many others saw that the case had strengthened. Chairman Powell faced dissension for the first time in his chairmanship.
Good News Close to Home
Still, not everything is bad news for the United States. In fact, there are positive indicators in droves: “We have incoming data in the United States that’s been pretty good, particularly for the consumer.” Some of those numbers include consumer sentiment and overall spending, which have trended higher recently.
But there remain concerns: “we do see though some areas that we’re looking at… so we’ll be monitoring the implications of all of those developments for the US Economic outlook, we expect to learn a good deal more… and we’ll be asking the question whether those risks are going to continue to weigh on the outlook, and then we’ll use our tools as appropriate to sustain this long expansion.”
That final sentence is key for those who would like to see lower rates. It is one of a number of hints in Powell’s press conference that they are finally willing to consider doing so. But he warned of the close relationship between lower rates and potential inflation.
In a world where policy rates are going to be closer to the effective lower bound, then just as a general matter, we need to be really strong on two percent inflation.
For Powell, the challenge is balancing interest rates and inflation. He is a hard-liner on two percent inflation, so expect to see rates sacrificed first, should the necessity arise.
On the Political Front
As with anyone in the Federal government, Powell’s job is not immune to political considerations. One question did slip through about how Powell would respond to any public (via Twitter) or personal requests or threats from the President about his job. His response was concise and clear:
“I think the law is clear that I have a four year term, and I fully intend to serve it.”
Whether President Trump likes it or not (and he does not), Chairman Powell is here to stay.