First, the editorial.
Jerome Powell Is a Happy Federal Reserve Chief
He thinks the central bank’s policy is working, though is it really ‘restrictive’?
By The Editorial Board, The Wall Street Journal, June 12, 2024
…
In the FOMC’s famous “dot plot” estimates of future economic conditions, the Fed governors and regional bank presidents lifted their projections for “core” inflation this year to 2.8%, up from 2.6% in March and 2.4% in December. They also downshifted their expected cut in rates to a single 0.25 point reduction through the rest of this year, down from three in March. Some in the financial markets not too many months ago were pricing in multiple quarter-point rate cuts in 2024. …
Inflation isn’t dead yet, as consumer prices remain 3.3% above what they were 12 months earlier, even after May’s good news. Service prices (excluding energy) are up 5.3% in the last 12 months, and “core” CPI (less food and energy) is up 3.4%. The Fed’s target is 2%.
The May figures vindicate the FOMC’s decision at the last several meetings to reject the calls on Wall Street and Washington to cut rates early and often. …
…it isn’t clear that Fed policy is as “restrictive” as Mr. Powell says. He repeated that more than once on Wednesday, but we have a hard time finding that in the financial or economic data… [end quote]
The WSJ Editorial Board is acting as the grownups in the room of young, rah-rah speculators who have continually ignored Fed chair Powell’s clear statements about Fed policy and tried to front-run the Fed.
The fed funds rate is not high on a historical basis. It’s not restricting the economy. The Fed should leave it in place until inflation subsides to their target of 2% and/ or the economy is clearly slowing.
Many traders are young and only remember the ultra-low rates put in place by Greenspan, Bernanke and Yellen. These led to bubbles in the asset markets and many poor economic and financial decisions.
Stung by Past Mistakes, a Wary Fed Takes Its Time
Jerome Powell’s approach on inflation forecasts and rate cuts amounts to ‘trust, but verify’
By Nick Timiraos, The Wall Street Journal, June 12, 2024
Federal Reserve Chair Jerome Powell’s approach to cutting interest rates based on forecasts that inflation will continue moving lower could be summed up by the phrase “Trust, but verify.”
On Wednesday [6/12/24], officials held rates steady and offered little evidence that they were prepared to begin lowering interest rates soon, as their counterparts in Canada and Europe began doing last week…
“We’re looking for something that gives us confidence that inflation is moving sustainably down,” Powell said at a press conference in which he used the word “confident” or “confidence” 20 times…
Powell on Wednesday said the decision to cut rates would be a “consequential” one because it could ignite substantial market rallies that boost spending and investment…[end quote]
That’s what the speculators are waiting for like the gun at the opening of a race. At least 3 times, SPX has surged forward on rate cut expectations only to be deflated when the Fed stuck by its plan and kept the fed funds rate steady.
But the Fed will not cut soon. And they won’t cut fast.
Wendy