Always great to sit down with our partners at State Street Global Advisors for a post-Fed Meeting discussion. Thank you Will Goldthwait for our quick Q&A today:
Laura: The Fed’s FOMC chose not to move their policy rate on Wednesday, as expected. What did you hear from them about the possible forward path of rates?
Will: So much of the commentary leading up to the meeting was focused on the dot plot. This is a measure of how Fed officials think about the future path of policy rates, perhaps a form of “forward guidance”. The dots told us the Fed is generally thinking higher rates for longer, with the “long term” dots show policy rates at 2.75%, 25 basis points higher than the 2.5% we have been at since 2019. The dot plot should be taken with a major grain of salt as Fed officials’ views will likely shift with each new economic data print, but in general it’s still indicative of how the committee is thinking about keeping policy rates higher for the next couple of years.
Laura: So how are you thinking about policy moves? I know in your last commentary you were thinking the Fed needed to begin cutting sooner rather than risk waiting too long.
Will: We still believe the Fed should begin cutting sooner rather than later to preserve a soft landing. Chair Powell was asked a similar question in the press conference following the rate decision and he was very balanced in his responses, admitting that while inflation has eased notably in the past two years, the committee is looking for further favorable inflation data before starting to ease.
Laura: What about this morning’s CPI print?
Will: Today’s CPI print was definitely the type of “good data” that the Fed was looking for, but one print is not going to be enough to give them the confidence they need to cut rates. The Fed is dealing with a perception problem. Even with inflation measures declining, perception still sees and feels the effects of higher prices. This is impacting everyone in the economy. The Fed knows they must stand strong on inflation and restore price stability.
Laura: So overall was this meeting more hawkish or dovish?
Will: Because of the favorable CPI print this morning, I’d say the meeting was balanced. If we had not had that print, then Chair Powell’s comments as well as the change in the dot plot (which is now showing just one cut for this year) could have been interpreted as more hawkish. Instead, these two things offset each other, and markets seem to be taking the news in stride rather than reacting dramatically in either direction.
