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Watch Live: Fed Chair Powell Explain Why Cutting Rates Ahead Of The Election Is Not Political

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by Tyler Durden
Authored...

Inflation's still above 3% (headline and core)... and SuperCore is still above 5%... and unemployment rates remain near the lowest deciles in US history...

Does that really sound like a time for The Fed to cut rates? According to the talking heads on CNBC and the market - the answer is yes.

But according to The Fed's statement, no!

The problem that Fed Chair Powell has is that September is his next option - which is precariously close to the election (the November FOMC is two days after the election). The market was pricing a 78% chance of a first cut in September before the dots were released...

So given today's exuberance around a dip in inflation, will Powell drop a hint or reassure that they are data-dependent... and completely apolitical...

Given the hawkish nature of the dotplot, we would expect Powell to jawbone us back to a post-CPI dovish shift... "Remember, the dots are not a forecast" or some such bullshit...

Watch Powell's press conference live here (due to start at 1430ET):

Here are some highlights (via the UBS trading desk):

  • Powell Says Data Have Not Given Fed Greater Confidence

Chair Powell said so far this year, the data have not given the Fed greater confidence. The most recent inflation readings have been more favorable than earlier in the year and there has been modest further progress toward the inflation objective.

  • Powell's Opening Statement At Some Odds With The SEP Presentation

Powell has spent all the opening statement explaining all the improvements that have been made. Consumer spending slowed, labour market in better balance, jobless rate ticked up, wage growth has eased, labour market tight but not over heated, inflation has slowed. In the end, he opts for "needs greater confidence". His commentary is (again) not as hawkish as the way in which the wider FOMC is showing up.

  • Powell Points To Risks From Base Effects This Summer

Last June, July and August's core PCEs were all 0.1s. Powell observes that "we had very low readings in the second half of last year, June through December really. And we're now lapping those. So as you go through the 12-month window, a very low reading drops out and a new reading comes in, the new reading gets added to the 12-month window. So it's just a slight element of conservativism that we're assuming a certain level of, you know, incoming monthly PCE and core PCE numbers."

  • Powell Says September Remains On The Table

Powell notes that the difference between the one cut and two for the year was extremely slight. Participants have to write down a point of view, but he said there was very little between writing in one or two cuts.

  • Powell Confirms SEP Reflects May CPI Data

Powell confirms that "what's in the SEP does reflect the data we got today." He also said most people do not revise their forecasts.

  • Powell Doesn't Completely Rule Out September Cut

Chair Powell doesn't completely shut the door down for a September cut, but his pushback was quite soft in my opinion. He used to say "SEP is just a forecast, everyone can have their opinion," but not this time.

  • Question: What Caused The Dots To Move Out; Answer: The Inflation Forecast Moved Up

Great simple question: so what happened? Powell's answer was nice and straight. The reality is inflation forecasts shifted up and so the median member pushed out their cut profile: less cuts this year but more expected next year.

  • Where's The Inflation Slowdown Going To Come From?

Another great question: growth is above trend and jobless below natural for the whole forecast period - where's the inflation slowdown going to come from? Powell's answer isn't very satisfactory really: the unwind of pandemic-related distortions and a positive supply shock in the labour market. Plus the restrictiveness of policy thus far. Powell followed that up by underlining that the Fed thinks policy is restrictive (interesting comment because a number of officials have questions by how much).

  • Fed Mindful The Market Will Likely Price A Sequence When First Cut Comes

Powell observes another issue that's holding the Fed back - that when it starts to cut it's highly likely financial markets will loosen considerably as the market prices a sequence of cuts. So, he said the decision to cut the first time would hence have to be considered "a consequential decision for the economy". He said since the US economy was currently strong the Fed would need to approach that decision very carefully. Note - he leaves it unsaid, but the inference is clearly that cutting too early causes an overheat and scuppers the chance of returning inflation to sustained 2%

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