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Jerome Powell was composed on Wednesday during what, at times, felt like a somnolent back and forth with reporters. All things considered, he did ok.
There was a lot to parse in the new SEP. The Fed tipped just one rate cut for 2024, but four for 2025. The long run dot shifted up, again, reflecting a higher neutral rate. And officials marked up their inflation projections to suggest very little, if any, progress versus current levels.
In light of all that, and in the wake of a CPI report which
Well, that’s June’s big day done, Q2’s all but wrapped up. Is it earnings season yet?
Given Powell’s track record at press conferences, I thought he did very well. He’s in a tough spot trying to maintain optimism w/o endorsing momentum trading or meme stock mania or suggesting that rates will stay basically as is unless economic conditions deteriorate markedly. He also avoided any alarming discussion about the risk of CRE to financial stability. He said a lot of nothing. He was Greenspan-esque.
I may have missed it, but I did not hear any reporters ask him about the concern Yellen expressed a week earlier regarding AI models in finance. Yellen cautioned that if market participants are running the same models based on the same data, it increases risks to financial stability. That’s not a new idea; the fact she made a point of saying it publicly is noteworthy. The Fed’s responsibilities include monitoring financial conditions and stability, yet not a word about a risk the Treasury Sec publicly recognized. She’s not talking about the future although she placed it somewhat in that context. She’s talking about now. I’m interested to see whether any Fed officials comment about “asset prices” (code for equity market”) in the next few weeks.
There’s public data available to all and then there are the internal components, mostly available but not widely disseminated because they make the process of rate management more complex. One can’t help but look at these FOMC meetings and imagine there have to be underlying elements the members see and discuss out of the limelight that we aren’t told (even though most of the committee have an almost existential need to talk about their feelings). Then there are the two types of decision errors, Type 1, doing something that proves to be wrong and Type 2, not doing something one should have. Most people hate Type 1 mistakes but Type 2 errors are often the biggest. The last couple Fed errors were nasty Type 2s so they don’t want to get behind the curve too far. On the other hand, an early cut or two that sends inflation over 3% is definitely no good. We all know one thing, that nobody knows anything. So any path chosen could easily be the wrong one and no one wants to make a public error before the election.