The final FOMC decision with Jerome Powell as chair:
- Prior was 3.50-3.75%
- Miran voted to cut
- Hammack, Kashkari and Logan did not support “inclusion of an easing bias in the statement at this time”
- Statement says economic activity has been expanding at a solid pace
- Job gains have remained low
- Inflation is elevated, in part reflecting the recent increase in global energy prices
- Developments in the Middle East are contributing to a high level of uncertainty about the economic outlook
That is a very unusual dissent from Hammack, Kashkari and Logan. I don’t think they’re trying to say that the Fed has an easing bias but shouldn’t. What they’re saying is that the Fed shouldn’t have a stance that’s like “we could hike or ease” but want the Fed to have only a hiking bias.
The market isn’t taking too much of a nudge from it but yields did climb a bit, though that could have been people sidelined beforehand. WTI is up $6.63 today so you would expect pressure in the front end.
The US dollar made small gains after the release, with the euro ticking to a session low down 35 pips to 1.1676.
The setup is genuinely awkward. The Iran conflict and the disruption around the Strait of Hormuz blew a hole in the inflation picture in March, dragging headline CPI back up to 3.3% from a far more comfortable 2.4% in February. April nowcasts have it pushing toward 3.6%. That’s the highest print in close to three years and it lands at exactly the wrong moment for a Fed that had finally convinced itself disinflation was on track. Energy is doing most of the damage, but the worry is always second-round effects.
On the other side of the mandate, the labor market has cooled. Not falling out of bed, but cooled — hiring has slowed, the unemployment rate has drifted higher, and wage growth has eased. The Fed doesn’t sound overly alarmed but it will be interesting to hear what Powell has to say. Retail sales and the April PMIs have held up better than feared, so it’s not a growth scare, at least not yet. It’s the uncomfortable middle ground where neither side of the dual mandate is screaming for action. I would note that AI capex spending is truly at insane levels and today’s core durable goods orders were at the best levels in four years.
Kevin Warsh on track to take over in May after clearing the Senate Banking Committee today. The press conference, normally the main event, has to be read through the lens of a chair who can’t credibly commit his successor to anything. With no SEP and no dot plot today, the statement wording and Powell’s tone are doing all the work. Powell will be asked if he will stay on as Governor.
This article was written by Adam Button at investinglive.com.
