The first Federal Open Markets Committee meeting under new Fed Chair Jerome "Jay" Powell concluded with the FOMC voting to raise the benchmark lending rate a quarter-point, as expected. Also as expected the markets focused on every word in the FOMC statement, released jointly with the rate announcement, and comments by Mr. Powell in the post-meeting press conference. The statement included forecasting a slightly more aggressive path of rate hikes in 2019 and 2020, citing an improving economic outlook as the reason. “The economic outlook has strengthened in recent months,” the statement read. It also repeated the previous language that they anticipate “further gradual adjustments in the stance of monetary policy.” The FOMC's economic forecast predicted a larger than expected fall in the jobless rate and an upward bump in the 2018 personal consumption expenditures (PCE) price forecasts for both headline and core inflation. These hawkish predictions moved the dollar higher...but then came the press conference.
No Fire and No Fury
During the press conference, Jay Powell took a much more cautious tone in the role of Fed Chair than many expected by being unexpectedly balanced, sending the dollar right back to where it was and even a bit lower. Regarding inflation in the short-term, he said the Fed sees limited inflation pressures even with the upward growth outlooks and lower unemployment rate projections. He said the Fed has "excellent control over rates" and the current system of steering rates is "working well." Referencing the economic predictions known as the "dot plots", which showed upward tweaks in the fed funds rate estimates that still leave a median of three total hikes in 2018, but with an additional hike during the 2019-20 period, he said "dot plot forecast can change in either direction for fewer or more than 3 rate hikes." He also said the Fed was prepared to use "all tools available'" if the need for easier monetary policy arises while blaming low productivity for weakness in wage gains. So Jay Powell, known for being direct and blunt was, to put it bluntly, doing his best Janet Yellen impression. This was most notable when discussing adding press conferences to the end of every FOMC meeting. The move would be viewed as a hawkish by markets, considering former Chair Yellen was very careful not to hold too many and made sure the market understood any FOMC meeting without a presser was off the table in terms of rate hikes. When asked about the possibility, Powell said that he is “going to be carefully considering it, I have not made a decision.” “My colleagues and I are committed to communicating as clearly as possible,” he added. “I would want to think very carefully about it and make sure that no one would take more frequent press conferences as a signal of the path of policy.” So how does the Fed view the U.S. economy? Much stronger. And rates?...eh.
Another Janet Yellen? We would be ok with that.