“Now we’re fairly close, we think, to where we need to get”
Another FOMC meeting, another presser with quotable Jerry P gems as the Chairman fielded questions on the whys and hows of holding rates steady. But with the new SEP showing fewer cuts over the next few years, some of his remarks seemed to take an oddly religious tone. “In terms of what the neutral rate can be… we know it by its works. We only know it by its works, really” (or fruits in the KJV). And “that time [to cut] will certainly come at some point” (as will the time to plant?). However, while the Chairman might have found religion in his framing of his arguments, reading between the lines, there appears to be a crack in his faith in the omnipotence of the FOMC and monetary policy. Powell’s newfound interest in religion might reflect the stress policymakers experience when trying to guess the location of economic turning points: “The fact that we decided to maintain the policy rate at this meeting doesn’t mean that we’ve decided that we have or have not at this time reached the stance of monetary policy that we’re seeking” (can neither confirm nor deny?). But there seems to be something else bothering the Fed chair. Beyond simply taking the time to talk about the difficulty in forecasting the economy (“a humble lot with much to be humble about” indeed!), Powell noted that price stability is “essential to set the stage for achieving maximum employment and stable prices over the longer run” [emphasis our own]. In isolation, the use of “set the stage” might have been a miscue rather than an admission of limited control (monetary policy is necessary but not sufficient), but Powell could not have been clearer when he touched on the possibility/likelihood of a soft landing: “Ultimately, this may be decided by factors that are outside our control at the end of the day”. Arthur Burns meets King Canute? There are no atheists in foxholes, but the good news is all Powell needs are the wise words of Peter Pan/Haruhiko Kuroda. “The moment you doubt whether you can fly, you cease forever to be able to do it”, to which Kuroda added, “What we need is a positive attitude and conviction”. Good luck, Jerome.
P.S. At the same time that Powell confirmed that the FOMC wanted to see that cooling inflation was “more than just three months”, inflation across the pond was throwing the BoE “a curveball” ahead of its rate decision. The BoE opted to stand pat “by a narrow margin of 5-4”. “When in doubt, do nowt”, as they say in the North of England. On a somewhat related note, Germany “appears to be moving closer to adopting a new multibillion-euro subsidy scheme to compensate industries for high energy costs”. Because high energy costs are clearly only temporary.
P.P.S. Though the children’s rhyme assures us that “words can never hurt me”, regionals may have bigger problems than Powell gaslighting banks that “No one will look back at this [rate forecast] and say, hey, we made a plan”: CRE continues to be a dumpster fire.
