Takeaways from Jerome Powell’s Press Conference

September 18, 2019

Fed Chairman Powell didn’t say anything particularly surprising at today’s press conference. His answers to a wide rage of questions, some on awkward topics like the one-directional abusive criticism of the Fed coming from the White House, were predictable on several levels. His comments adhered to long-established Fed stances such as the data dependency of future policy changes, the limited and twofold goals of monetary policy, the refusal to tell deciders and enforcers of other economic policies how to do their jobs, and the fact that policy is not guided by a preset course.

As in July when the first rate cut was made, Powell repeated a distinction between a favorable baseline or most likely U.S. economic scenario and mounting downside risks from trade policy and weaker global growth that could adversely impact future U.S. economic performance. The two rate cuts done at end-July and now are meant to ameliorate any adverse impact of such crosswinds. While there is a diversity of opinions on the FOMC regarding how much damage trade policy and slower growth in other economies might cause and in how much and how soon to counter those factors, the average view on the FOMC is not anticipating a need for significant additional moves in the federal funds rate, but the committee is prepared to act more forcefully if future conditions warrant. He said, not for the first time, that Fed officials watch the yield curve carefully but consider an inversion but one of many useful market indicators of future activity, noting that an inversion can reflect several things and in any case would need to be sustained more than briefly to be meaningful in that way.

Powell did concede that fiscal policy is on an unsustainable path and is more suitable than monetary policy as a tool for improving long-term economic growth. That’s a core belief of economists and has been expressed many times in the past by central bank officials. Likewise, the view that trade policy uncertainty is detrimental is not new, nor is the role of trade protectionism in dampening global growth. Powell defended the morale of workers at the Fed.

During Powell’s press conference after the first interest rate cut in late July, U.S. share prices sank over 1.0%, but they rose slightly this time. The biggest immediate market reactions today were a 5-basis point rise in the 10-year Treasury yield and a drop below $1500 in the price of gold.

Copyright 2019, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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