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March 20, 2024 19:59 GMT
"Bumpy Road" For Inflation Doesn't Change Bigger Picture For FOMC (1/2)
FED
A few observations from the March FOMC press conference Q&A with Chair Powell, which MNI's Markets Team took to be on the dovish side:
- Limited Discussion Of The Dot Plot: There was relatively little time spent in the Q&A on the latest economic and rate projections. On the higher 2025-26 Dot median and the longer-run rate increase from 2.5% to 2.6%, Powell noted "I don't think we really know that rates are going to be higher in the long run" but that "my instinct is that rates will not go back to the very low levels." That said, the market was more focused on the nearer-term outlook, and with the 2024 median holding at 3 cuts (4.6%), "If you look at the SEP, it is still likely in most people's view that we will achieve that confidence and that there will be rate cuts" this year.
- Regarding whether the new macro projections alongside no change to the 2024 Fed funds rate median suggested that the FOMC had more tolerance for higher inflation and stronger growth, Powell said "It doesn't mean that. We did mark up our growth forecast, so the economy is performing well. The inflation data came in a little bit higher as a separate matter, and I think that caused people to mark up their inflation projections. But nonetheless, we continue to make good progress." In other words, the projection changes can largely be regarded as merely marking-to-market the forecasts due to recent data as opposed to a wholesale shift in the way the FOMC was regarding the economy - even if it doesn't quite square with the higher 2025-26 growth forecasts. The latter indicates the FOMC is becoming much more confident about underlying growth, without worrying about the potential inflationary implications.
- Taking Recent Inflation Readings Seriously, But Not A Game Changer: Powell noted that while the FOMC is "always careful about dismissing data we don't like", and I think very broadly that suggests that we were right to wait until we're more confident" on inflation progress, the January and February CPI/PCE data could have reflected seasonal effects. And it "hasn't changed the overall story which is inflation moving down gradually on a sometimes bumpy road toward 2%" even if "I don't think those readings added to anyone's confidence that we're moving to that point [inflation coming down sustainably to 2%]."
- It doesn't sound like the FOMC is particularly concerned about the recent readings. Asked whether he was getting more concerned over housing disinflation stalling, Powell said there would be a combination of 3 factors (goods prices, housing services, and ex-housing services) that would bring overall inflation down to target ("We will get aggregate inflation down to 2% over time. We will".)
To read the full story
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Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Sign up now for free trial access to this content.
Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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