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Recalibrating
Jerome Powell went out of his way on Wednesday to frame the Fed's 50bps rate cut as a "recalibration" aimed at helping to align monetary policy with the balance of risks around the Committee's dual mandate, as opposed to the onset of an aggressive easing cycle implemented to combat a developing downturn.
It's fair, I think, to assess that Powell wasn't as dovish as the median 2024 dot, at least to the extent he was adamant that the Fed's taking a meeting-by-meeting approach to setting policy wh
Sensible decision, sensible responses, and here a sensible summary. Thx.
It’s very telling that there was no questions or concerns raised about if this or subsequent cuts (or the easing of financial conditions) might trigger another round of inflation or at least keep 2 percent out of sight
Its like any possibility of an inflation flare up is viewed as either remote or impossible
Well, yes, I think a strong inflation “flare-up” is at least remote (though certainly not impossible), this far out from the stimmies and the supply chain issues that helped drive the last one. A modest bit of inflation would seem bearable and is certainly preferable to a recession, and that would then be something Jay can try to fine-tune with the only tool available. I wouldn’t have asked Jay about that. We were below 2% long enough that I’m ok with running just a bit hot for a while, all things considered.
Alternative Universe: There is a Committee on Inflation and there is a Committee on Employment. In essence each has their own mandate. If the votes are in both are in balance the deciding vote is cast by a third Committee on Risks.
Inflation Risks as I see them w/o getting into the right or wrong debate: Higher Tariffs post elections regardless of who is elected / Higher Fuel costs.
Employment Risks are rising Unemployment and other indicators as outlined by Pres. Dudley.
The Fed goal should be exactly what Chair Powell enunciated. They are date dependent.
Unfortunately we do not live in an alternate universe. We have a Fed who has a range of instruments but the focus is always on the timing, hammer and its velocity either way. The quality of data doesn’t seem to be in question.
Powell was asked about persistent housing (“shelter”) inflation. He said housing inflation is “the one piece dragging” with market rents moving up at low levels, renewal leases not coming down, it will take several years to see housing inflation decline to where we want it, but he’s confident it will. Just paraphrasing; see transcript for exact reply. This is interesting because it suggests to me that Powell/FOMC is not counting on shelter inflation to ease decline near-term and won’t be alarmed if it doesn’t. I personally don’t think it will [ease near-term], maybe I’m just talking my book.
One thing that I didn’t understand until this year: OER or Owners’ Equivalent Rent is based on tracked rents of single-family rental houses, not on what homeowners “think” their houses might rent for. That infamous question is used for weights not for measure. I think the supply of rental houses is both tighter and growing slower than the supply of apartments, which is another reason I think shelter inflation will stay higher for longer.