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Dovish Powell Acknowledges FOMC Is Thinking About Thinking About Cuts


In the press conference, Chair Powell delivered little to no pushback to market expectations of significant rate cuts next year, and in fact ensured that future easing was the main topic of the day. Whereas in previous press conferences he has dismissed questions about rate cut speculation out of hand, he entertained several of them today.

  • Indeed the key moment of the presser was his acknowledgment that at this meeting, the Committee discussed future rate cuts: "the question of when it will become appropriate to begin dialing back the amount of restraint in place...begins to come into view and is clearly a topic of discussion out in the world, and also a discussion for us at our meeting... I would say there's a general expectation that this will be a topic for us, looking ahead. That's really what happened in today's meeting."
  • Obviously with the Dot Plot pointing to a 2024 median 75bp of rate cuts, with reductions expected by 17 of 19 members, and rates already basically acknowledged to be at peak, it would have been disingenuous to say that the idea of reducing rates in future didn't come up at all. But Powell fairly readily volunteered this information very early in the press conference, which in turn set the tone for the remaining 45 minutes with multiple questions about the Fed's reaction function for future cuts. He could well have left the issue for the FOMC Minutes release in January.
  • While Powell mentioned several times that the Committee didn't want to take further hikes off the table if they were deemed appropriate, it was each time in the context of acknowledging that the Fed sees rates likely near or at their peak levels of the cycle already.
  • He sounded encouraged about the labor market moving into better balance, and that they've "seen real progress in core inflation"), pointing out that each of the three key categories the Fed is eyeing (housing, ex-housing services, and goods) were contributing to disinflation. Overall he said that disinflation progress is "great", "we just need to see more".
  • And he didn't really push back against easing financial conditions, noting that market pricing has been a "back-and-forth", depending on different views on the economic outlook.
  • When asked how the Fed would ensure it's not behind the curve on easing, he went fairly far in entertaining the possibility, noting that the risks of over-tightening and under-tightening were now better-balanced: "we're aware of the risk we would hang on too long - we're very focused on not making that mistake."
  • Overall his commentary and tone seemed at odds with his final speech before the FOMC blackout: "it would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease."

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