The clearest message the Jerome Powell delivered at the press conference was that he wasn’t going anywhere as Fed chair, no matter what the President asks or tries.
That’s great news for markets because we know exactly what we will get with Powell: A dove.
The kneejerk on the FOMC statement was hawkish because they removed the line about gaining greater confidence about inflation returning to target. Powell quickly dismissed that and said the change had no meaning.
He followed that up by saying that the Fed’s plan for next year is to continue gradually cutting rates. There were the usual caveats about data and adjusting but the stronger message was that the Fed wasn’t worried about higher yields or better economic data. Simply, he believes the economy can run hot without creating inflation.
His one stumble was this:
“We do know where the destination is but we don’t know the right pace and we don’t know exactly where the destination is.”
What I think he was trying to say there was that the destination is ‘neutral’ but they don’t know where it is. However virtually everyone on the Fed thinks it’s below 4% and pricing for next October is 3.75% so there is plenty of ammunition if the economy stumbles.
The risk with delivering a message like this is the market says ‘you’re wrong’. If Treasuries yields rose on his comments, particularly at the long end, the market would be telling him that he’s too dovish and fuelling inflation. Instead, the message from the market is ‘don’t fight the Fed’.
Now I think there are certainly some political cross-currents in everything right now and a strong hint of “he didn’t really mean it about tariffs” but that’s the state of play today.