Chair Powell Speaks

Fed Chair Jerome Powell spoke publicly from Dallas on Thursday afternoon. Powell made a speech and then participated in a moderated discussion. He was, in my opinion, quite clear in that he used this appearance to create some optionality for the FOMC in terms of the trajectory for monetary policy over the next few months. To put it more succinctly, Powell is no longer sure that short-term interest rates need to go lower.

Powell stated, "The economy is not sending any signals that we need to be in a hurry to lower rates. The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully." This statement is in contrast to what the FOMC and its membership has signaled at recent meetings and in public appearances.

On inflation, Powell spoke as if he had not seen October CPI and PPI that heated up from September and had not seen projections for November that imply further acceleration of consumer prices for that month. However, as his words dragged on, I think it became obvious that he has. Powell said, "Inflation is running much closer to our 2% longer run goal, but it is not there yet. We are committed to finishing the job. With labor market conditions in rough balance and inflation expectations well anchored, I expect inflation to continue to come down toward our 2% objective, albeit on a sometimes-bumpy path."

Then came clarification... "In this situation, what it calls for is for us to be careful. The plausible range of neutral levels, it may be the case that we slow the pace of what we're doing just to increase the chances that we get this right."