Powell Press Conference - Viewpoint

Excerpts from Powell’s press conference: ? ?

1. “No one is declaring victory, that would be too immature”.?

2. Rates cut discussion “begins to come into view”.?

3. Focused on not making the mistake of holding rates for too long??

4.” Doesn’t want to take a further hike off the table”.?

?

Powell seems to be happy with the current pace of inflation falling despite recent data surprises in labour and super core inflation showing underlying strength. Powell stated that the full effect of tightening is not yet felt and hints that weakness in labour and service should be caught even though at the current level the wage and labour strength is inconsistent with target inflation.?

?

? ?

What changed: ? ?

Only 2 weeks ago Powell said, “It is too early to speculate when policy might ease” and that “risks to inflation and growth are balanced”. However, the down revision in projections clearly showed his bias towards easing. ?

?

Market reaction: ? ?

24 cuts repriced from -110 to -150, march meeting is pricing in about 95% of a cut from 70%.? Given Powell’s confidence in mild labour reduction, inflation trajectory and firm GDP data the confidence of a soft landing is boosted pushing ES1 to increase by 1.7%???

?

Thoughts:? ?

The Fed downplayed the risk of inflation rebound but tried to leave room for inflation surprise.??

Looking ahead a downward surprise in labour and service inflation should warrant stronger confidence in cuts in Q1, shifting cuts forward but not necessarily the greater size of cut. A slowing in growth could cause a greater number of cuts to be factored in.? ? ? ? ? ?

?