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Fed’s Powell emphasizes need for more evidence that inflation is easing before cutting rates

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8 months ago

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Jerome Powell, chairman of the US Federal Reserve, during a Fed Listens event in Washington, DC, US, on Friday, March 22, 2024. A trio of central bank decisions this week sent a clear message to markets that officials are preparing to loosen monetary policy, reigniting investor appetite for risk.

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Federal Reserve Chairman Jerome Powell said Wednesday it will take a while for policymakers to evaluate the current state of inflation, keeping the timing of potential interest rate cuts uncertain.

Speaking specifically about stronger-than-expected price pressures to start the year, the central bank leader said he and his fellow officials are in no rush to ease monetary policy.

Watch Fed Chair Powell speak live at Stanford policy conference economic forum

“On inflation, it is too soon to say whether the recent readings represent more than just a bump,” Powell said in remarks ahead of a question-and-answer session at Stanford University.

“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 added. “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy.”

The remarks come a week after the rate-setting Federal Open Market Committee again voted to hold benchmark short-term borrowing rates steady. In addition, the committee’s post meeting statement on March 20 included the “greater confidence” qualifier needed before cutting.

‘Bumpy path’

Markets widely expect the FOMC to start easing policy this year, though they have had to recalibrate their outlook for the timing and extent of cuts as inflation has held stubbornly higher. Other economic variables, particularly in the labor market and consumer spending, have held up as well, giving the Fed time to assess the current state of affairs before moving.

The Fed’s preferred inflation measure, the personal consumption expenditures price index, showed a 12-month rate of 2.5% for February, or 2.8% for the pivotal core measure that excludes food and energy. Virtually all other inflation gauges show rates in excess of 3%.

“Recent readings on both job gains and inflation have come in higher than expected,” Powell said. “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.”

Other Fed officials speaking this week have made remarks consistent with the Fed’s patient approach.

Cleveland Fed President Raphael Bostic told CNBC on Wednesday that he thinks just one cut might be in the offing as prices of some important items have turned higher. San Francisco Fed President Mary Daly said three cuts is a “reasonable baseline” but noted there are no guarantees, while Cleveland’s Loretta Mester also said cuts are likely later this year while adding that rates over the longer term may be higher than anticipated. All three are FOMC voters.

Powell reiterated that decisions are being made “meeting by meeting” and noted only that cuts are “likely to be appropriate … at some point this year.”

The uncertainty about rates has caused some consternation in markets, with stocks falling sharply earlier this week as Treasury yields moved higher. The market stabilized Wednesday, but traders in the fed funds futures market again repriced their rate expectations, casting some doubt on a June cut as the market-implied probability moved to about 54% at one point, according to CME Group data.

Election ahead

Along with his comments on rates, Powell spent some time discussing Fed independence.

With the presidential election campaign heating up, Powell noted the importance of steering clear of political issues.

“Our analysis is free from any personal or political bias, in service to the public,” he said. “We will not always get it right — no one does. But our decisions will always reflect our painstaking assessment of what is best for our economy in the medium and longer term — and nothing else.”

He also talked about “mission creep,” specifically as it relates to some demand for the Fed to get involved in climate change issues and the preparations financial institutions take for related events.

“We are not, nor do we seek to be, climate policymakers,” he said.

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Morgan Stanley picks China stocks to ride out a worst-case scenario in U.S. tensions

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Elon Musk endorses Trump’s transition co-chair Howard Lutnick for Treasury secretary

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17 hours ago

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November 16, 2024

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Elon Musk at the tenth Breakthrough Prize ceremony held at the Academy Museum of Motion Pictures on April 13, 2024 in Los Angeles, California.

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On Saturday, Elon Musk shared who he is endorsing for Treasury secretary on X, a cabinet position President-elect Donald Trump has yet to announce his preference to fill.

Musk wrote that Howard Lutnick, Trump-Vance transition co-chair and CEO and chairman of Cantor Fitzgerald, BGC Group and Newmark Group chairman, will “actually enact change.”

Lutnick and Key Square Group founder and CEO Scott Bessent are reportedly top picks to run the Treasury Department.

Musk, CEO of Tesla and SpaceX, also included his thoughts on Bessent in his post on X.

“My view fwiw is that Bessent is a business-as-usual choice,” he wrote.

“Business-as-usual is driving America bankrupt so we need change one way or another,” he added.

Musk also stated it would be “interesting to hear more people weigh in on this for @realDonaldTrump to consider feedback.”

Howard Lutnick, chairman and chief executive officer of Cantor Fitzgerald LP, left, and Elon Musk, chief executive officer of Tesla Inc., during a campaign event with former US President Donald Trump, not pictured, at Madison Square Garden in New York, US, on Sunday, Oct. 27, 2024.

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In a statement to Politico, Trump transition spokesperson Karoline Leavitt made it clear that the president-elect has not made any decisions regarding the position of Treasury secretary.

“President-elect Trump is making decisions on who will serve in his second administration,” Leavitt said in a statement. “Those decisions will be announced when they are made.”

Both Lutnick and Bessent have close ties to Trump. Lutnick and Trump have known each other for decades, and the CEO has even hosted a fundraiser for the president-elect.

The Wall Street Journal also reported that Lutnick has already been helping Trump review candidates for cabinet positions in his administration.

On the other hand, Bessent was a key economic advisor to the president-elect during his 2024 campaign. Bessent also received an endorsement from Republican Senator Lindsey Graham of South Carolina, according to Semafor.

“He’s from South Carolina, I know him well, he’s highly qualified,” Graham said.

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Protecting your portfolio against risks tied to Trump’s tariff plan

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21 hours ago

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November 16, 2024

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Biggest Risks After the Rally: Trade & Top Valuations

Money manager John Davi is positioning for challenges tied to President-elect Donald Trump’s tariff agenda.

Davi said he worries the new administration’s policies could be “very inflationary,” so he thinks it is important to choose investments carefully.

“Small-cap industrials make more sense than large-cap industrials,” the Astoria Portfolio Advisors CEO told CNBC’s “ETF Edge” this week.

Davi, who is also the firm’s chief investment officer, expects the red sweep will help push a pro-growth, pro-domestic policy agenda forward that will benefit small caps.

It appears Wall Street agrees so far. Since the presidential election, the Russell 2000 index, which tracks small-cap stocks, is up around 4% as of Friday’s close.

Davi, whose firm has $1.9 billion in assets under management, also likes staying domestic despite the tariff risks.

“We’re overweight the U.S. I think that’s the right playbook in the next few years until the midterms,” added Davi. “We have two years of where he [Trump] can control a lot of the narrative.”

But Davi plans to stay away from fixed income due to challenges tied to the growing budget deficit.

“Be careful if you own bonds for sure,” said Davi.

Since the election, the benchmark 10-year Treasury yield is up 3% as of Friday’s close.

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