At his press conference on Wednesday, Federal Reserve Chair Jerome Powell kept quiet. He had been hurt by too much optimism before.
One person who used to work at the top of the Fed said Powell was “disciplined and vague” and “optimistic and cautious” during press conference.
Ex-Fed official and founder of the research firm Macropolicy Perspectives Julia Coronado said in an interview, “I think we learned very little and that was the point.”
Economists thought that two interest rate cuts this year were a sure thing after the May CPI data came in lower than expected. They were shocked when the Fed said it would only make one cut this year.
When Powell was asked to explain, he said that the May CPI data “was certainly a better inflation report than almost anyone expected.” However, he made it clear that the data only covered one month.
Coronado said Powell was showing that he has learned the hard way not to gush too much about inflation.
In December of last year, Powell said that a rate cut might happen soon because inflation data was weak. The financial markets quickly priced in almost seven cuts. It took months for the Fed to get the markets to think about things in a more realistic way.
The Q&A with reporters taught us the following, along with some of the questions he didn’t answer:
If inflation falls quickly, the Fed is ‘prepared to respond’
Powell wrote in his prepared remarks, “We are ready to act if the job market were to weaken unexpectedly or inflation were to fall more quickly than expected.” New words were used to talk about inflation. At his most recent press conference in May, Powell only talked about cutting rates if the job market was weak.
Fed projections signal one cut; Powell fine-tunes the message
Powell told the press that many Fed officials were not sure whether they would cut rates once or twice this year. He said that they would be open to either option, depending on the data. Powell said that both predictions were “likely.”
Krishna Guha, vice chair of Evercore ISI, said that Powell made some small changes to the Fed’s message.
Guha said, “All in all, we see the presser as fine-tuning the message from a one-cut message to a 1.5-cut message, with the data to decide whether we get one or two moves.”
What data is important to decide whether there is one or two hikes?
Powell didn’t want to help much here. Powell said the Fed wanted to see low inflation rates, but he wouldn’t say how many they wanted to see. He also said that the Fed was looking at a lot of different kinds of data, such as the job market and the forecast.
Did the Fed change their predictions after the CPI report this morning?
Derek Holt, head of capital markets economics at Scotiabank, said Powell was vague on this point.
Powell said that the Fed can change its predictions when new data comes in, but most people don’t do that.
“I got the sense that he was trying to say that the predictions took into account the CPI from this morning.” “I didn’t believe him because of how he answered and how he acted,” Holt said.
“What does this leave us with?” “I’m going back to watching the data,” he said.
