Chairman Powell clearly prefers to be remembered as ‘Too Late Powell’ rather than as ‘Push Over Powell’, as the FOMC held the policy rate steady at 4.25-4.50%. The meeting marked the first time since December 1993 that two committee members dissented from the vote.
The press release.
The details in the press release were similar to their June statement. But there was a slight dovish slant to the wording change: from ‘economic activity has continued to expand at a solid pace’ to ‘activity moderated in the first half of the year’.
The press conference.
During the press conference, Chairman Powell struck a different tone, pushing back on any notion that the FOMC was close to easing.
- When questioned about the falling payroll numbers, he pointed out that demand for jobs was also declining at the same pace. Hence, the job market remained in balance with a low unemployment rate.
- He pointed out that inflation remained elevated and that price increases due to tariffs were only starting to emerge. Thus, he could not be sure of the magnitude and duration of the impact on inflation.
- He also reminded everyone that the policy rate remained ‘modestly restrictive’ (neutral rate is around 3%) to restrain inflation in the services sector.
The implications.
The majority of FOMC members are waiting for a clear signal that the economy is slowing enough to restrain inflation without the need for higher rates. As such, bond traders have pushed rate cuts further out in time, resulting in yields backing up 5 to 6 bps.