“I don’t discuss elected officials, publicly or privately”, Jerome Powell said, when asked by a reporter from Politico if there will ever come a time when it’s appropriate for the Fed to make a statement in defense of its independence amid withering criticism emanating from the White House.
That was the wrong answer, but it’s to be expected. Powell isn’t the hero type.
Fortunately, his answers to most of the other questions lobbed his way during the post-FOMC press conference on Wednesday were largely “correct”, where that just means he managed to thread the needle. The Fed was as dovish as they could have been without cutting rates and Powell reinforced that in his remarks.
Anyone hoping the Fed would push against market pressure was just as disappointed as those hoping Powell would take a stand against Trump.
One of the more notable moments from the press conference came when Powell suggested that even those who did not pencil in rate cuts this year acknowledged the case for “somewhat more accommodative policy” is now stronger in light of recent events.
He dodged an early question from the Journal‘s Nick Timiraos on the prospects for a inter-meeting cut and he also parried a question about what, exactly, the Fed hoped to achieve from cutting rates given the current state of the economy.
Asked about the relative merits of adopting a weak dollar policy to help with trade competitiveness (both Trump and Elizabeth Warren were mentioned by the inquisitive reporter), Powell simply said that’s not the Fed’s concern. Amusingly, he referred those questions to Steve Mnuchin.
Obviously, Bullard’s dissent was notable although, as mentioned previously, it was expected. The dollar dove following the statement’s release and if you ask BMO, the move was amplified by the first dissent of Powell’s tenure.
2-year yields plunged more than 10bp, bull steepening the 2s10s pretty sharply, a clear indication the market thinks cuts are coming. “The Fed hasn’t said or done anything to change the market pricing for a cut in July”, SocGen’s Subadra Rajappa said. The bull steepening “is a further reaffirmation”. In fact, Wednesday looks like the biggest one-day steepening for the 2s10s since the election.
Powell did say “there was not much support for cutting rates at this meeting”. Some of “these events are so recent, we wanted to see if they persist”, he remarked, a reference to the trade frictions. But he was quick to hedge that. “[We’ll] act as needed”, he said. “Including promptly if needed.”
Powell emphasized the weakening in inflation expectations and fretted that “we certainly don’t want to be seen as weak on inflation.”
Asked about academic literature which shows that with rates near the lower bound, it pays to come out swinging, Powell acknowledged the studies and said the notion that an “ounce of prevention is worth a pound of cure” is a “valid way to think about policy”. That said, he didn’t take the bait any further. The question was clearly designed to get him to commit to a 50bp cut right out of the gate.
On the balance sheet, Powell said the committee “hasn’t made any decisions yet.” “If we do provide more accommodation, we’ll certainly keep in mind what we said earlier this year”, he added, referencing the notion that the Fed is “always willing to adjust balance-sheet policy so that it serves our dual mandate”.
All in all, things went pretty well for Powell and the Fed, especially considering the circumstances. Stocks liked it, but didn’t “love” it, and 10-year yields fell, but didn’t plunge, with 2% still looking like a tough nut to crack.
Of course, if you’re inclined to be indignant about the extent to which expectations (i.e., the bond market) are “wagging the dog”, then you might want to express some feigned incredulity that the Powell Fed felt it necessary to meet expectations and avoid triggering an unwind in crowded trades. To those folks I would say “What did you expect?”
Asked what he would do if Trump tried to remove him, Powell simply reiterated that the law is clear – he has a four-year term and he intends to serve it.