FED
That list of comments seems to encompass a wide variety of opinions, and the overall tone from speakers seems to be slightly more hawkish than the December minutes’ commentary (and implied by Powell’s press conference comment) that "a substantial majority" saw the policy stance as "still meaningfully restrictive".
- In a press conference that is likely to be thin on details, any shift in Powell’s tone on perceived neutral or how restrictive policy is will be closely eyed.
- Powell noted at the December press conference that the reason to slow down cuts is because having cut by 100bp, “we are significantly closer to neutral” though “at 4.3% and change, we believe policy is still meaningfully restrictive…we are closer to the neutral rate which is … reason to be cautious about further moves
- In December, the “longer-run” dot in the Dot Plot rose from 2.875% to 3.00% - the 4th consecutive quarterly rise. While this isn’t considered to be the short-run “neutral rate”, it is the clearest manifestation of Committee members’ view that rates aren’t going back to pandemic lows.
- Also eyed will be any more insight on how the Fed regards the backup in longer-end rates: at least one FOMC member (Bowman) has highlighted the increase in long-end market-implied inflation expectations as a reason to be cautious in cutting further, though a large part of the nominal increase has been in real yields and – overall – term premia.
- Last time, Powell noted longer-run rates “are affected to some extent by Fed policy, but they’re also affected by many other things”.
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