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Comment: Chair Powell’s press briefing holds no surprises, monetary policy is appropriate and still patient

Chair Jerome Powell’s post-FOMC meeting press briefing was a bit shorter than usual, perhaps for no other reason than there wasn’t much to add to the meeting statement and implementation note issued earlier.

On the modest 5 basis point cut in the IOER to 2.35%, Powell said it “does not reflect any change in the stance of monetary policy.” It was a solely a technical move. It was not intended to convey the Fed’s ability to control short-term rates. Powell noted that, “A small, temporary deviation outside” the fed funds rate target range “would not be important”.  He added that, “We control only directly the fed funds rate” and that “transmission into other rates has been good over time”.

The reductions in the caps on reinvestments in the Fed’s balance sheet began in April in a program designed to proceed gradually and carefully. The FOMC discussed its longer term plans for the size and composition of its holdings, and something more definite is likely to be reached “before end of year”. However, “there is no pressing need” for an immediate decision.

Powell reiterated that the Fed is committed to its 2% inflation objective over the medium term. He admitted the “surprise” that both headline and core inflation measures were running below objective, but that the Committee thinks the factors keeping core inflation lower at present are transitory or idiosyncratic and will be of brief duration.

He repeated that the US economy is on a “good path for this year” and that present monetary policy is appropriate while a “patient” FOMC mulls over the data and awaits developments.

Risks to the economy are not absent, but seem to be less of a concern than they were, such as the prospect of a disruptive Brexit or for US trade and tariff policy to cause problems.

Powell said the FOMC had done a “deep dive” in reviewing economic and financial conditions, and “We don’t see a strong case for moving in either direction”. Even with the strong labor market, “We don’t see any evidence at all for overheating” and low inflation provides room for patience.

While vulnerabilities in financial stability are not absent, on the whole they are no more than moderate. The only place Powell cited as possible of more than passing concern was around nonfinancial corporate debt which is “highly leveraged”. However, the overall financial system is “quite resilient” to shocks.

Finally, Powell was insistent that the Federal Reserve is a non-political institution. He was emphatic that the FOMC does not take politics into consideration in the process of making monetary policy decisions. He said the Fed is dedicated to carrying out its mission to support maximum employment and price stability.

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