Uneventful. The outcome of the January FOMC meeting was just that—uneventful, if not downright dull. As we highlighted in our pre-FOMC meeting package (here), no major surprises were expected. Powell merely bought time and raised the bar for a rate cut in March—the only moment of the press conference that wasn’t entirely forgettable, in our view. Next up: Q1 repricing and the scope of tariffs. We believe the Fed is unlikely to take action until there’s more clarity on both fronts.
Statement
No changes. The new FOMC statement contains only minor changes that mark to market recent economic developments: “Labor market conditions remain solid” “Inflation remains somewhat elevated.”
Q&As
Question: Inflation expectations have moved up. Are you concerned about upside risks to inflation?
Powell. “I would say you see expectations moving up a little bit at the short end, but not at the long run, which really matters. […] Where the committee is very much in the mode of waiting to see what policies are enacted, and we do not know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. […]. And I think we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be”.
Comment: Powell’s response regarding expectations comes as no surprise, given that the Fed’s CIE (Common Inflation Expectations) index hasn’t shown any real upward movement in Q1, according to our nowcast. Below, we present the latest model run—sample stopping in Q4.
Question: What do you need to see from tariffs in order to recalibrate policy?
Powell. “I think the range of possibilities is very, very wide. We just do not know. And I do not want to start speculating, as tempting as it is, because we really do not know. And we did not know, by the way, in 2018. […] We do not know what is going to be tariffed, we do not know for how long or how much, what countries, we do not know about retaliation. We do not know how it is going to transmit through the economy to consumers. […] You know, there are lots of places where that [tariffs, ndr] can show up between the manufacturer and the consumer, just so many variables. So we are just going to have to wait and see”.
Comment: We agree with Chair Powell. At this stage, assessing the implications is extremely challenging, as there is still very little information available. In any case, readers can refer to our estimates and simulations here.
Question: Do you run scenarios when assessing implications of future or possible policies?
The obvious answer is “yes”. Powell reminded the audience that for every Tealbook the staff prepares a set of “alternative scenarios” using FRB-US. We remind the reader that the person who did it for 20+ years at the Board (Tilda Horvath) works at Underlying Inflation. Please, feel free to reach out with requests, in case.
Question: Is a March cut on the table?
Powell. “The broad sense of the committee is that we don’t need to be in a hurry to adjust our policy stance”.
Comment: This was the only interesting moment of today’s press conference. In other words, a March rate cut is still on the table, but the bar is set extremely high. Given the risks and Q1 repricing, a cut before June seems highly unlikely to us.