By Denny Gulino
WASHINGTON (MaceNews) – Facing a renewed presidential onslaught and a Federal Open Market Committee split over rate cut policy, Federal Reserve Chair Jerome Powell Wednesday said that the day’s quarter-point cut is part of a “meeting by meeting” policy that is hard to anticipate.
“We made one decision today,” he said at the post-FOMC news conference, “Our decisions are going to depend on the implications of incoming information for the outlook and I would also say, as we often do, that we’re not on a pre-set course.”
“Sometimes,” he added, “the path ahead is clear and sometimes less so. So we’re going to be looking carefully meeting by meeting at the full range of information and we’re going to assess the appropriate stance of policy as we go.”
The bottom line of the latest FOMC statement, the quarterly expectations as placed in the “dot plot” by FOMC participants and Powell’s news conference remarks was to leave up in the air how many, if any, more rate cuts are in store this year.
U.S. stocks took a dive at the rate-cut announcement, apparently disappointed at the mixed signals sent by the “dot plot” projections and the FOMC splits as signaled by the three dissents then gradually rebuilt a path toward positive territory as Powell spoke. The Dow industrials actually made it, closing up 37 points. The S&P 500 managed a single point advance and the Nasdaq fell short, down slightly, 0.11%.
President Trump took time from his West Coast tour to attack Powell personally again after the chairman had been talking a few minutes. “Jay Powell and the Federal Reserve Fail Again,” he tweeted. “No sense, no vision. A terrible communicator.”
Asked how he responds to that tweet, Powell answered, “I don’t.” He said, “I’m not going to change my practice here today of not responding to comments or addressing comments made by elected officials.”
He went on, “I would just say that I continue to believe that the independence of the Federal Reserve from direct political control has served the public well over time and I assure you that my colleagues and I will continue to conduct monetary policy without regard to political considerations.”
Powell also said he’s not advising the Treasury Department or Congress on fiscal policy other than to say that currently it is not sustainable. That is in contrast to European Central Bank President Mario Draghi’s statement last week that he and his Governing Council have concluded it is time to strongly emphasize the role of fiscal policy among EU member states to accompany monetary policy moves.
“That’s really Treasury’s job and Congress’s job,” he said. When considering how much to spend, how big the deficits are and how to finance them, “None of that really calls for advice from the Fed.” Only “high level” statements are made by the Fed about how important it is that fiscal policy be made sustainable.
The “bulk of the committee,” he said is concerned about the balance of risks that may be ahead while seeing no recession, a strong consumer and corporate leverage as heightened and a possible amplifier of problems but not in itself a risk to the expansion.
Expectations are of GDP achieving near 2% growth in the years immediately ahead and of the inflation rate, despite weak price pressure currently, eventually reaching the Fed’s target of 2%.
While lacking the drama of a “whatever it takes” declaration, Powell did say that the Fed will keep cutting rates as it sees necessary and will stop doing so at some point that cannot be specified. Answering one question about the rate outlook for the year 2020, he said it is difficult to form any “hard expectations” of policy so far out and he indicated just getting the next 90 days right was enough of a challenge.
“Knowing what the data will say and the way geopolitical events and other events will evolve in the next 90 days and the implications of that for the economy, I would say there’s a lot of uncertainty around that.”
Longer-range expectations of FOMC participants reflected in the “dot plot” are merely there to give a “sense” of how the individual members feel about the future> Powell said he’s very “very reluctant to look at those opinions as “hardened views or as predictions.”
Powell answered several questions about a new topic, the Fed’s support of the money market which required two special securities purchase operations Monday and Tuesday, to provide liquidity to the repo market, that hasn’t been necessary for a decade.
“There’s real uncertainty and it is certainly possible that we’ll need to resume the organic growth of the balance sheet earlier than we thought,” he said. “Organic growth” was not to be confused with a resumption of quantitative easing.
The U.S. economy so far is performing “roughly” a word he repeated – “as expected,” Powell said. “The consumer is spending at a healthy clip, I’d say business fixed investment and exports have weakened further and I’d say the manufacturing PMI suggests more weakness ahead. The labor market’s still strong so generally that’s the same” as at the last FOMC meeting.
However, “The global economy, I think, has weakened further in the EU and China and I think trade policy developments have been a big mover of markets and of sentiment douring that intermeeting period.” Different FOMC participants “have different perspectives.”
St. Louis Fed President James Bullard’s dissent indicated he preferred to lower the target range for the federal funds rate by half a point instead of a quarter point, to 1.5% to 1.75%. Kansas City Fed chief Esther George and Boston Fed President Eric Rosengren did not want any rate cut at all.