The Fed’s looking for “greater confidence” that inflation is moving sustainably down to 2%.

That was the key message from Jerome Powell during a repetitive post-FOMC Q&A with reporters who pressed for answers about why the Fed’s seemingly not content with inflation running at, or even below, 2% on a three- and six-month annualized basis.

The short answer, of course, is that those measures aren’t the target. The target is based on the 12-month rate. The longer answer, which Powell painstakingly delivered, is that the Fed wants to be absolutely sure (or as sure as they can be) that the “good signal” from the six-month annualized rates (for example) isn’t a head fake, to use Powell’s term from a few meetings ago.

“Implicitly, we do have confidence,” Powell said. “It’s not that we’re looking for better data, we’re looking for a continuation of the good data.”

Asked what, if anything, in the numbers suggests the signal might be false, Powell reiterated that the Fed does generally trust the trend, but said the disinflation tailwind on the goods side could fade, noted that services prices are sticky and, ultimately, that the Committee “just need[s] to see more.”

Nick Timiraos noted that between Wednesday’s favorable ECI data and the sharp drop in key measures of consumer inflation expectations, both tail risks for runaway price growth (a wage-price spiral and unanchored expectations) have effectively been eliminated. So, why wait to reduce policy restriction?

“Almost every participant does believe” it’ll be appropriate to reduce rates, Powell emphasized. “We’re trying to identify a place where we’re really confident.”

Asked by Timiraos if not cutting rates as inflation recedes risks running afoul of the Taylor rule (or any other rule for that matter), Powell said the Committee’s “never been in a place” where the Fed’s setting rates based purely on any one rule or prescription. “We can’t mechanically adjust policy as inflation comes down. We look at more than just the Fed funds rate,” he told Timiraos. “We don’t know with confidence where the real rate of interest is at any given time.”

That latter point is absolutely critical. As discussed at some length here last week in “Are Fed Cuts Star-Crossed,” if the Fed can’t say with confidence where neutral is, then it’s disingenuous to make definitive claims about how restrictive (or not) policy settings are.

Powell was quick to add that the Fed plainly doesn’t want to wait around to cut rates until the economy’s in a recession, “because that’d be too late.” Asked later if job losses would increase the urgency around cuts, Powell said yes. “An unexpected weakening in the labor market… would certainly weigh on cutting sooner,” he remarked. “Absolutely.”

Rachel Siegel from The Washington Post asked if Powell’s comfortable saying the US has achieved a soft landing. He was emphatic: “No, I wouldn’t say that. We’re not declaring victory at all at this point. We think we have a ways to go.”

When asked by Bloomberg’s Michael McKee if he’d at least be willing to say the US avoided a hard landing, Powell embarked on a quick victory lap around everything that’s gone right. “This is a good situation. Let’s be honest,” he said. But he wisely avoided suggesting things can’t still go wrong.

Steve Liesman wanted more color on the neutral rate, and specifically whether the Fed’s actually confident, given resilient growth, that monetary policy had an impact. Powell said it did, but as always, he gave credit where it’s due: On the supply side. Monetary policy is having an effect on the interest rate-sensitive areas of the economy, he told Liesman, but “it’s a joint story. It’s a complicated story.”

The issue is that between corporates terming out their debt and households refinancing their mortgages at record-low rates in 2020 and 2021, the “interest rate-sensitive areas of the economy” aren’t as prominent as they used to be. Powell didn’t say that. I did.

Asked if he sees anything that suggests inflation could re-accelerate, Powell offered a very good answer. “The greater risk,” he said, is that inflation stabilizes modestly above 2% (3%, say, or 3.5%), not that it accelerates dramatically again. “That’s why we keep our options open,” he said. “You’ve had six good months. But what’s really going to shake out here?”

Fox wondered if Powell was willing to say explicitly what the new statement said implicitly: That a March cut is extremely unlikely. As it turns out, Powell was willing. “Based on the meeting today, I don’t think it’s likely that the Committee will reach a level of confidence” on inflation to cut rates in March, he said. “That’s probably not the most likely case — not the base case.”

Finally, when queried on balance sheet runoff, Powell said the Fed had a preliminary chat on tapering QT this week. The “in-depth discussions” will begin in March.