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Comment: Chair Powell does not know when “trade negotiations and other matters” will be resolved, outlook for monetary policy remains wait-and-see

Chair Jerome Powell delivered his opening remarks at the well-broadcast “Conference on Monetary Policy Strategy, Tools, and Communications Practices”. On such an occasion, it is uncommon for the speaker to deviate from the topic at hand. However, Powell felt the need to provide markets with a bone to pick over in their anticipation of two rate cuts this year. He made it clear that he wasn’t going to give them much to gnaw on. His comments were reserved to a brief, upfront paragraph that said, “I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve.”

This essentially reiterates his frequent comments that monetary policy is not on a preset course, that no decision is made in advance of a meeting, and that decisions will be made on the data and information the FOMC has at the time of the meeting. Not unlike what San Francisco President Mary Daly said earlier, the ultimate outcome and therefore the ultimate effect of trade negotiations, Brexit, and other geopolitical and economic concerns are unknown. The Fed isn’t going to offer assurance or insurance until they know more with greater certainty. Markets likely won’t find this very satisfactory, but to expect anything else at this juncture is wishful thinking.


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