In a departure from the usual Fed rhetoric, Federal Reserve Chair Jerome Powell delivered remarks Friday that carried significant implications for the central bank’s future policy decisions. While not all of Powell’s statements can be classified as dovish, they marked a notable deviation from the recent Fed-speak. CNBC’s Steve Leisman went so far as to describe it as a complete rejection of the hawkish views expressed by Fed officials like James Bullard and Raphael Bostic.
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At the heart of Powell’s message was the assertion that the Fed can “afford to look at the data” at the upcoming June meeting. This can be interpreted as a signal to exercise caution and adopt a “wait and see” stance — AKA, refraining from raising interest rates. The significance of this statement lies in the fact that the probability of a June rate hike had climbed as high as 20% according to Fed Funds Futures prior to Powell’s speech.
Moreover, Powell indicated that not only is a pause in June highly likely, but the anticipated peak in rates could be lower than initially projected due to tightening credit conditions. This assertion serves as a rebuke to the more hawkish voices within the Federal Reserve, adding to a series of recent critiques against their stance.
To provide context, Bullard recently downplayed the risk of a credit crunch, while Bostic argued that even in the event of a recession, the Fed should refrain from cutting rates, even going as far to say that he would approve another rate hike.
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Powell, in contrast, acknowledged,
“We’ve made significant strides in tightening policy, and our current stance is restrictive. However, uncertainties remain regarding the lagged effects of our previous tightening measures and the extent of credit tightening resulting from recent banking strains.”
Many economists estimate that the impact of Fed rate hikes is felt with a delay of one to two years, implying that the pressure experienced currently could be merely the beginning, even if the Fed halts further tightening. This acknowledgment from Powell regarding the potential dangers associated with the Fed’s tightening measures is a notable departure from his previous stance, which was often depicted in the phrase, “there’s more danger in not doing enough than in doing too much.”
One more important thing to note: Bullard, Bostic, and Barkin will all speak on May 22nd, early in the morning. It’ll be interesting to see if they acknowledge today’s comments from Powell, or maintain their hawkish script. Their speech times are as follows:
8:30AM: FOMC Member Bullard Speaks
10:50AM: FOMC Member Barkin Speaks
10:50AM: FOMC Member Bostic Speaks
THE WRAP UP
Powell’s remarks strongly indicate that a rate pause in June is highly likely. By suggesting that the peak in rates may be lower than initially anticipated, Powell implies that there might not be any further rate hikes throughout this economic cycle. In other words, we may already be at the peak. Furthermore, Powell’s cautionary tone represents a departure from the more hawkish views expressed by other Fed officials this week, highlighting the dangers of going “too far” — a pivot from previous messaging that emphasized the risk of “doing too little” outweighing the risk of “doing too much.”
