He’s not leaving

The FOMC cut its target rate by 25bp today, as expected, taking the fed funds range down to 4.5-4.75%. Chair Powell’s press conference sounded a little dovish to us: he expressed confidence that inflation and inflationary drivers were well-behaved, saw further cooling in the labor market as unwelcome, and endorsed a plan to gradually ease back toward neutral. Perhaps the most memorable part of the press conference was unrelated to the economy or monetary policy. When questioned if he would resign if asked by Trump, he said “No.” When asked if he’d be legally required to leave, he had another simple one-word answer “No.” While the December meeting will depend on the data over the next six weeks, the tone from Powell today made us marginally more confident in our call for another 25bp cut then.

The decision to cut rates was unanimous. The post-meeting statement had no real meaningful changes. To get away from talking about the storms, the description of the labor market takes the long view and now says: “Since earlier in the year, labor market conditions have generally eased.” The statement dropped the mention in the September statement that “the Committee has gained greater confidence that inflation is moving sustainably toward 2 percent.” This got some people excited, but Powell noted that there was no signal in that change. Rather, greater confidence was a test for the first rate cut. Having met that test in September it became obsolete and was removed from the statement. The statement continues to note that the risks to inflation and employment are roughly in balance, and most importantly continues to provide the same noncommittal guidance that “in considering additional adjustments” to the funds rate the FOMC will be data dependent.

In addition to being asked whether he would leave, Powell fielded several questions about the election and potential policies of the incoming administration, all of which he avoided giving direct answers. A recurrent theme was that policy was on a “path” or an “arc” toward neutral. Consistent with this, when asked if he could rule out a rate hike next year, he replied that a hike was not the plan, but rather that they would continue to gradually move back down towards neutral. On inflation, Powell said ex-housing services core PCE inflation is basically at levels consistent with 2% inflation. On housing services, Powell said that’s merely a problem of old leases catching up to market leases. He also offered that labor markets are not a source of inflationary pressure and that inflation expectations are consistent with 2% inflation.