In yesterday’s address to Stanford’s Graduate School of Business, Fed Chairman Powell heralded the FOMC’s success in reducing inflation from levels a year-ago: February PCE Index 2.5% vs 5.2% a year earlier; Core CPI 2.8% latest vs. 4.8% a year ago.
Despite the success, he went on to inject a dose of reality with the statement that ‘the job of sustainably restoring 2 percent inflation is not yet done’. Powell made several glass half full/glass half empty depictions of inflation. But news outlets chose to focus on Powell’s statement that ‘The recent data do not, however, materially change the overall picture, which continues to be one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path’.
But while reporters were scribbling that statement into a catchy headline, they may have missed the qualifier: ‘On inflation, it is too soon to say whether the recent readings represent more than just a bump. We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent’.
He further said that ‘my colleagues and I continue to believe that the policy rate is likely at its peak for this tightening cycle’ shortly followed by ‘Of course, the outlook is still quite uncertain, and we face risks on both sides. Reducing rates too soon or too much could result in a reversal of the progress we have seen on inflation and ultimately require even tighter policy to get inflation back to 2 percent’.
Markets continue to focus on a Fed rate cut path beginning this year with three 25 basis-point cuts priced in.
The dollar is lower following Powell’s comments. The U.S. Dollar Index is -0.95% over three days, the biggest losses vs. commodity currencies which have followed oil higher: -2.51% vs. NOK, -2.12% vs. SEK, -1.97% vs. AUD, -1.50% vs. NZD.
U.S. Treasuries are lower in the long-dated tenors, the benchmark 10-year yield -0.006%. Gold marked another all-time high reaching $2,304.09.
