Powell on Policy

Powell's appearance on Tuesday was really pointed in multiple directions. Powell stated that "Elevated inflation is not the only risk we (the Fed) face." as he too acknowledged a softening labor market. On employment, Powell added "The latest data show that labor market conditions have now cooled considerably from where they were two years ago, and I wouldn't have said that until the last couple of readings." The last part of that quote was most likely in reference to the unemployment rate that has now gone higher for three consecutive months. While implying that cutting rates too soon or too deeply could reverse progress made in the fight against consumer level inflation, Powell did offer those looking for softer monetary conditions some hope... "More good data would strengthen our confidence that inflation is moving sustainably toward 2%." On that, headline CPI on a year over year basis, has exhibited overt disinflation for two straight months with expectations for a third when that data-point is reported on Wednesday. I would warn readers that due to base effects, year over year disinflation could look authentic into August / September. This is/was expected...then, later this year it starts getting tough again. That could provoke an error in policy if the FOMC is simply looking for an excuse to decrease short-term rates ahead of the election.