Powell Don’t Talk Much Like Yellen…

By Heisenberg

Jury Still Out On Whether That’s Good Or Bad

Ok so in sum, on the Fed: three hikes (total) projected in 2018, a steeper trajectory in 2019 and 2020, upward revisions to growth this year and next, lower unemployment trajectory across the board, and a modest inflation overshoot on core next year and on headline and core in 2020.

Here’s what Neil Dutta, head of U.S. economics at Renaissance Macro Research had to say:

So, next year, the median FOMC official sees a slight overshoot on inflation (+0.1ppt) another 0.3ppt drop in the unemployment rate and just one more rate hike. That’s somewhat less than you’d expect in a standard Taylor Rule type model. That is not really hawkish, in my view. Buy stocks. Buy front end.

Inline with what I was suggesting earlier, the statement was kind of lukewarm on growth, describing economic activity as rising at a “moderate” rate, while describing job gains “strong” – that’s as opposed to the “rising at a solid rate” language and the less exuberant take comes courtesy of household spending and business fixed investment having “moderated”.

As far as the risks, they’re “roughly balanced” and of course the committee is monitoring shit “closely”. On the rate hikes, it’s still “further gradual” increases.

I guess what I would maybe note is that while they delivered the expected upgrades to the growth forecasts and did indeed attempt to use the statement rather than the SEP to express consternation at recent weakness (e.g. retail sales), they’re projecting an overshoot (albeit a tiny one) on the inflation front in 2019 and 2020 for core. When you throw in the steeper path of hikes in 2019 and 2020, I’m not sure this constitutes a particularly risk-friendly longer-term outlook.

Plus, even as they project a slow convergence to target, one wonders how inflation can remain that low with unemployment projected to grind inexorably lower over the same time frame.

Maybe this “explains” it:

Powell would go on to say that he doesn’t see any sign of runaway inflation right now, which I guess is comforting (?) He also said he’s aiming to strike a “middle ground” on rates.

I’m sorry, but this feels like an effort to kind of muddy the waters. And while that’s ironically part and parcel of being a “successful” DM central banker, this ham-handed approach to obfuscation won’t work over the long haul.

Bloomberg’s Luke Kawa writes the following:

My sense of Powell versus Yellen so far: different diction, same message. He’s a little blunter, as one would expect from someone who hasn’t been steeped in economics literature for their whole lives.

I’m not sure doublespeak and bluntness are going to be compatible forever. Dispatching with questions quickly while maintaining some semblance of ambiguity in one’s answers to those questions is a difficult task. And I bet that’s going to fuck Powell at some point. I know everyone hates the econo-speak, but the “good” thing about it is that it leaves a lot of room for interpretation and thus allows folks to read into it what they want.

Here are some bullet point highlights from the first couple of minutes of the presser:

  • The U.S. economy continues to expand and job market remains strong, with most FOMC participants revising up their projections since December.
  • The fundamentals underpinning demand remain solid
  • Balance sheet rundown is proceeding smoothly as the central bank gradually scales back accommodation; overall financial conditions remain accommodative
  • Inflation remains below 2% long-run objective; shortfall partly reflects unusual price declines
  • Further gradual rate increases will promote Fed’s goals
  • Raising rates too slowly would raise concern that monetary policy could tighten too quickly down the road
  • At same time, Fed wants to avoid inflation running persistently below its objective

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