Powell's Pirouette

Dr. George Cooper

Chief Investment Officer

March 21, 2019

We’re guessing that after yesterday’s FOMC meeting Fed Chairman Jerome Powell is back on President Trump’s Christmas card list.

The FOMC left interest rates unchanged as expected. In every other respect the messaging from the meeting was markedly dovish. Both the statement and Powell’s commentary suggest the FOMC now has no intention of moving interest rates in either direction for an extended period – “Federal Funds rate is now in the broad range of neutral”.

The press release itself contained a number of notably dovish observations: “growth of economic activity has slowed from its solid rate in the fourth quarter”…”slower growth of household spending and business fixed investment in the first quarter”…”overall inflation has declined”…”the Committee will be patient”. These were further reinforced in the press conference where Powell drew particular attention to the slowdown in the European and Chinese economies.

Within the Q&A session Powell’s response to questions on the inflation outlook were interesting. Powell emphasised the need to avoid the Japanese and European disinflation trap and described low inflation expectations as meaning the Fed was paddling upstream to keep inflation up to their 2% inflation target.

This meeting completes perhaps the fastest FOMC volte-face on record, moving from extreme hawkishness in early October 2018 to extreme dovishness now.

All in all both President trump and his favourite measure of presidential success, the stock market, should be quite happy with the new fed tone.

FOMC press release with our highlights.

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