KEJI - Weekly Commentary: That's Our Story.
2024-03-23 05:59:45 ET
Summary
- It's a challenge to have confidence that Powell and the Fed have a sound understanding of the nature of second round inflation effects.
- With market exuberance running sky-high, it's not the optimal environment for reinforcing the notion of a Fed cocked and ready to unleash easier monetary policy.
- Markets today are convinced the Fed will respond hastily to fledgling risks, albeit in the financial markets, softening labor or economic weakness.
Powell: "I would say the January number, which was very high, the January CPI and PCE numbers were quite high. There's reason to think that there could be seasonal effects there. But nonetheless, we don't want to be completely dismissive of it."
"But I take the two of them [January and February CPI] together, and I think they haven't really changed the overall story, which is that of inflation moving down gradually on a sometimes-bumpy road toward two percent. I don't think that story has changed."
"…The story is really essentially the same, and that is of inflation coming down gradually toward two percent on a sometimes bumpy path."
"We've got nine months of 2-1/2% inflation now, and we've had two months of kind of bumpy inflation."
Powell's dovish mindset was not limited to the inflation backdrop.
The NYT's Jeanna Smialek: "But so strong hiring in and of itself would not be a reason to hold off on rate cuts?"
Powell: "No, not all by itself no… You saw last year very strong hiring and inflation coming down quickly. We now have a better sense that a big part of that was supply side healing, particularly with growth in the labor force. So, in and of itself, strong job growth is not a reason for us to be concerned about inflation."
Powell: "We don't think that the inflation was not originally caused, we think, I don't think, by mostly by wages. That wasn't really the story."...
Weekly Commentary: That's Our Story.