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Although Federal Reserve Chairman Jerome Powell blamed President Donald Trump's trade policy for headwinds, which he says the central bank has little impact on, the bulk of its About was mentioned in September, as expected investors.
"Monetary policy is a powerful tool that supports consumer spending, business investment and public trust, but it can not provide established rules for international trade," Powell told the Fed's annual symposium. Kansas City in Jackson Hole, Wyoming. The markets seemed to be in agreement.
later in the day after Trump threatened new actions against China. But that does not mean investors will let the Fed get away with it.
Two-thirds of investors in federal fund futures are planning at least a further quarter-point cut in October, after the expected one-quarter cut in September. And Powell does nothing to discourage this speculation. "We will act appropriately to support the expansion," Powell said after his warning about the limits of what monetary policy can do.
Of course, no one holds the Fed accountable for the trade war with China, the growing prospect of a Brexit without agreement, the economic slowdown in China and Germany, riots in Hong Kong or the fall of the Italian Government. in the litany of economic evils cited by Powell. But his moans about this and what seemed to be more designed to prevent the Fed from being a scapegoat by Trump, who nevertheless maintained his attack Friday against Fed policy, wondering on Twitter if the Chinese leader, Xi Jinping, or Powell is the biggest enemy of the US economy. .
Although the role of the Fed is reactive, it must respond to these macroeconomic events and Powell does not shirk. "Committee members have generally responded to these developments and the risks they pose by lowering their expectations of the appropriate federal funds rate trajectory," Powell said.
"In conjunction with the rate cuts in July, changes in the anticipated policy have eased financial conditions and helped explain why the outlook for inflation and employment remains broadly favorable."
The July meeting did not include the quarterly projection materials, including the federal funds rate forecast dot plot, but had already seen a sharp reduction from March, with almost half of the participants anticipating a new forecast. reduction to 1.75-2.00 before the end of the year.
It is almost certain that this chart will show a further drop in expectations by September, perhaps a little less than the market expectations of two additional cuts, at 1.50-1.75 by the end of the year. year.
Some of the hawks of the Federal Open Market Committee (FOMC) oppose their resistance to further cuts. Cleveland Fed chief Loretta Mester said on the sidelines of the Jackson Hole conference that she thought interest rates were now at the ideal level. She is not a voting member of the panel this year, but she opposed the July rate cut with two regional dissident leaders, Esther George of Kansas City and Eric Rosengren of Boston.
George and Patrick Harker, director of the Philadelphia Fed, also expressed resistance to further cuts (Harker did not vote this year). Dallas Fed chief Robert Kaplan, who is not a voter, sat on the fence, saying he would prefer not to cut in September but would remain open-minded. St. Louis Fed President James Bullard, who is an elector and goes hand in hand, said the inverted yield curve was not a good choice and indicated a reduction in the benchmark rate.
Not that all that matters. Powell seems to be on a cut and he will have the five-member board of governors and New York Fed chief John Williams behind him, along with Bullard's vote.
After that, the end result is that the Fed must play ball if the economy stutters for some reason. Beyond Powell's incessant comments or the feelings of regional leaders, this is what investors are focusing on.
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