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Comment: Chair Powell’s June 25 speech does not tell us much about the outlook for monetary policy

In Chair Jerome Powell’s speech on Tuesday, June 25, he did not advance the discussion of current monetary policy much beyond what was said in the June 19 FOMC statement and his subsequent press briefing. The main points seem to remain that FOMC policymakers have taken into account the intensified “cross currents” that could push the US economy into a downturn and are prepared to take action in the form of rate cuts, if warranted. However, it would be unwise to consider a 25 basis point cut at the July 30-31 FOMC meeting as a done deal.

Powell did take the opportunity to stress the independence of the Federal Reserve in setting policy, possibly in a move to get in front of perceptions that the Fed has caved to political pressures should a rate cut take place at the next meeting. It won’t silence crowing that President Trump has gotten what he wanted, but it does at least reiterate the Fed’s principles and intentions. In spite of the fact that three of the five Fed Governors are Trump appointees and the office of Chair was a Trump nomination, so far evidence is lacking that votes have reflected loyalty to Mr. Trump’s wishes or will do so in the future.

For a breakdown of the how appointments to the Board of Governors works and how nominations could play out, see the Whetstone Analysis comments of December 24, 2018 “Comment: The Fed Chair does not set monetary policy. That is done by the FOMC.” and in the June 19, 2019 “Comment: Even with latest developments, Fed policymakers likely to remain cautious.”  

Powell speech concluded, “The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation. Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. We will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.”

Should the “cross currents” ebb and economic data suggest growth and inflation over the medium term will remain in line with the FOMC’s forecast of about 2.1% GDP for 2019, a majority of policymakers will be reluctant to unnecessarily give back some of the progress toward policy normalization. A few dovish voices will not override the FOMC consensus even as that consensus may consist of a smaller majority. It would be a mistake to call the Chair’s words a pledge or promise to lower rates. Rather, it is a statement of bias toward lowering rates to respond to sustained changes in the economy.

In any case, Powell is probably waiting for his semiannual monetary policy testimony to offer up any policy signals. His appearances before the Senate Banking Committee and House Financial Services Committee are not yet on the calendar but should be soon – typically it is in the second or third week of July. The closer proximity of his testimony to the next meeting is crucial to how the Chair frames economic conditions and the outlook for rates. Between now and then, policymakers will see:

  • If the meetings between President Trump and President Xi at the G20 summit results in trade agreements that will resolve the tariff fights.
  • If tensions between the US and Iran ease somewhat and oil prices respond accordingly.
  • If the payroll data rebounded in June with the Employment Situation on Friday, July 5 at 8:30.
  • If other measures of inflation – notably the CPI for June at 8:30 ET on Thursday, July 11 – belie the softness in the PCE deflator.
  • If business optimism – in the NIFB Small Business Optimism Index for June at 6:00 ET on Tuesday, July 9 – persists in spite of the uncertainties in the outlook.
  • If business inflation expectations have firmed or are at least maintaining a trend close to the Fed’s 2% objective – via the Atlanta Fed’s Business Inflation Expectations reading at 10:00 ET on Wednesday, July 10.
  • And depending on how late in the month the testimony is scheduled, the University of Michigan’s preliminary Consumer Sentiment Index for July at 10:00 ET on Friday, July 19 might offer some clues as to how sustained solid consumer spending might be in the second quarter and if consumer inflation expectations have maintained their recent lows.

While the release of the minutes of the June 18-19 FOMC meeting at 14:00 ET on Wednesday, July 10 will not lack interest, the release of the next round of high frequency economic data should temper perceptions of conditions. What may be clearer is the nature of the split in the so-called “dot plot” that was virtually even between those leaning toward a rate cut and those not. Just how dovish are the doves and moderate-to-hawkish are the rest? But whether that is a good indication of what the FOMC will do on July 30-31 will depend on data and developments in the interim.

See the Whetstone Analysis Reference Library for a history of dates of semiannual monetary policy in relation to the release of the FOMC meeting minutes.


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