Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a press conference following the Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S. (Photographer: Anna Moneymaker/Bloomberg)

Powell Brushes Aside Rate-Cut Pressure With Confidence on Prices

(Bloomberg) -- Federal Reserve Chairman Jerome Powell pushed back against pressure for interest-rate cuts from traders and President Donald Trump, saying inflation will rebound and the economy will stay healthy without fresh help from the central bank.

“We don’t see a strong case for moving in either direction,” Powell told a press conference Wednesday after officials left their main rate unchanged. “The economy continues on a healthy path, and the Committee believes that the current stance of policy is appropriate.”

Powell Brushes Aside Rate-Cut Pressure With Confidence on Prices

U.S. stocks fell and the dollar advanced as investors pared bets that the Fed’s next move would be a rate cut. Treasuries ended the day little changed after gyrating after the release of the statement and during the briefing.

Trump has repeatedly attacked Powell and his colleagues and suggested they cut rates by a full point in a tweet on Tuesday, hours after they began their two-day meeting. Traders are also in disagreement with the central bank and have priced in a so-called insurance cut that they see as necessary to get inflation back to the central bank’s 2 percent target.

Powell has “seized the narrative back from the financial markets,’’ said Priya Misra, head of global rates strategy at TD Securities. “His message was growth is better and low inflation is transitory.’’

Powell Brushes Aside Rate-Cut Pressure With Confidence on Prices

The chairman, Trump’s pick for the job, played down the threat of weak inflation by repeatedly noting it may be due to “transitory” factors. He added that neither the economy nor financial markets appear poised to boil over. “We don’t see any evidence at all of overheating,” Powell said.

The Federal Open Market Committee’s statement repeated that it would be “patient” as it weighs future rate moves. The unanimous 10-0 decision left the target range for the benchmark federal funds rate at 2.25 percent to 2.5 percent.

Expectations of rate cuts slipped, with around 5 basis points worth shaved from pricing for year-end, relative to the start of the day. Traders now see a full quarter-point of easing by the end of the first quarter of 2020. Overnight swaps had earlier reflected wagers that that would happen in December.

“The market has been over-discounting the possibility of Fed cuts at the end of the year,” said David Leduc, active fixed income CIO for Mellon Investments Corp. “The market was a little disappointed.”

Powell’s remarks sought to strike a balance that reflected the mixed economic signals that officials have been getting from recent data.

What Bloomberg’s Economists Say

“While the FOMC’s ‘patient’ guidance in determining future adjustments to policy remained, the statement’s characterization of economic conditions suggests that Fed officials are not rushing to dismiss recent weakness in consumer spending and business investment as transitory.”
--Carl Riccadonna and Yelena Shulyatyeva, economists
Click here for the full note.

The economy expanded at a 3.2 percent annualized pace from January to March, boosted by exports and growth in inventories. The labor market remains strong, with unemployment at around a half-century low and wage gains near the best pace of this expansion.

Still, inflation has remained vexingly low. The Fed’s preferred price gauge climbed just 1.5 percent in March from a year earlier, well below the central bank’s 2 percent goal. These misses come in a year when the Fed is reviewing its inflation targeting framework.

Powell distinguished between price trends that might be temporary and those that would cause inflation to run “persistently below’’ the objective. He pointed to the Dallas Fed’s trimmed mean inflation index, which removes outlier prices on the high and low side. It stood at 2 percent in March.

If inflation was running persistently below 2 percent, “that is something the committee would be concerned about, and something that we would take into account in setting policy,” Powell said, stopping short of saying a rate cut was a plausible near-term scenario.

Powell noted in his opening remarks that global risks that caused the Fed to pivot away from its plans for two 2019 rate hikes appear to have moderated, another component of his optimistic outlook on growth and prices.

“The main development today was that the Fed really is not concerned about the move in core inflation, which the market is very worked up about,” said Stephen Stanley, chief economist at Amherst Pierpont Securities LLC.

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