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Powell Sets A Reasonably High Bar To March Cut

FED
It was a pretty neutral press conference overall for Chair Powell until he pointedly cast serious doubt over a March cut: "based on the meeting today, I would tell you that I don't think it is likely that the Committee will reach a level of confidence by the time of the March meeting... it is probably not the most likely case, or what we would call the base case."
  • That shouldn't be a surprise to anyone listening to FOMC members' commentary since the December meeting, with little apparent appetite to cut in the near future.
  • Powell also noted that he would "point to the SEP as good evidence of where people are" - suggesting that data in the interim has not changed the median participant's view of 3 cuts in 2024 (which probably implies a first cut only later in the year).
  • He appears to have learned his lesson from last month's mention of the meeting's rate cut discussion, as he kept it quite brusque this time "There was no proposal to cut rates. Some people did talk about their few of the rate path."
  • Some lingering March cut bets have hung on, because Powell spent a lot of time talking about data dependence in making the decision to cut. One of the implicit aims of Powell's press conference was to maintain meeting-to-meeting optionality - for example when asked how many months of "good" inflation data they'd need to be confident, he said "I will not put a number on it".
  • More quantitatively, he noted that "I think if we came to the view that the 6 month inflation numbers are very close to 2, in PCE, if we thought that is where we really would be, then yes, our policy would be in a different place."
  • In the end, though, while it's not a "base case" - "there are risks that would cause us to go slower, for example, stronger inflation. And there are risks that could happen that would cause us to go faster or sooner, and that would be a weakening in the labor market or very persuasive, lower inflation".
  • So a March cut is possible, but the bar is set reasonably high, and will probably involve a downside surprise in the inflation or employment data in the next 6 weeks. The FOMC was burned by hiking too little, too late in the cycle - they don't want to "declare victory" on inflation, as Powell said, prematurely.
  • On the topic of QT tapering, "we had some discussion of the Balance Sheet" at this meeting - as expected - though Powell cast doubt on a QT taper announcement as soon as March and/or initiation soon thereafter ("We are planning to begin in-depth discussions of Balance Sheet issues at our next meeting in March.")
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