By Denny Gulino
WASHINGTON (MaceNews) – After lowering the fed funds rate by another quarter point, Federal Reserve Chairman Jerome Powell Wednesday suggested the “tail risks” of the U.S.-China trade right and Brexit seem to have diminished, a hint that still more accommodation might need a new and unexpected trigger.
Hints were mostly all there were in Powell’s post-FOMC news conference and the most definitive criteria he could give that would lead to still another rate cut was if something so significant happened as to trigger a “material reassessment” of conditions.
By Powell’s account the Fed appears to be as mystified as ever why some large banks with plenty or reserves refused to deploy them during liquidity crunches. He repeated that the Fed’s purchases of $60 billion a month in T-bills, to fund injections of reserves, will continue as described, through the second quarter of next year.
One question that was not asked was why the bond market veterans who advise Treasury had seen, as of Tuesday, a risk of a scarcity of T-bills and of a “greater divergence in money market rates.” The Treasury Borrowing Advisory Committee even saw financing rates to be “volatile again, owing to regulatory capital constraints” for the biggest banks.
He was asked repeatedly what it would take to get the Fed to move again and he referred to the concept of “material reassessment.” Something big enough to make the Fed start over from scratch, whatever that might be, would be the necessary element.
Without a lot to go on, he said it seemed the U.S. China trade fight had taken a step toward less contentiousness and that the “tail risk” of an abrupt no-deal Brexit had also diminished.
The Federal Open Market Committee statement seemed shorn of all embellishments and was hardly updated from the previous meeting. The two dissenters, Esther George and the Boston Fed’s Eric Rosengren still wanted to stand still, not seeing sufficient justification for any rate cut.
There is no thought of raising rates at this point, Powell said. Using conventional and unconventional – or what used to be unconventional – tools the Fed still has a lot it could do in case of emergency.
The GM strike, he said, probably cut a couple tenths off of GDP in the latest quarter and the economy might make that up next year. The advance GDP report, published earlier in the day, showed growth at 1.9% at an annual rate in the third quarter, only a tenth less than the previous quarter.