Though Split on the October Cut, Policymakers Now United on “Wait and See” Posture

The minutes of the October 2019 FOMC meeting didn’t provide much additional insight into rates policy— either the decision at that meeting or future decisions—beyond what we learned from Powell’s press conference and subsequent remarks from FOMC participants. The FOMC is pleased with the current stance of policy and there is a higher bar for future rate cuts. See our commentary for an exploration. 

Powell will deliver a speech Monday evening (11/25) on “Building on the Gains from the Long Expansion.” Policymaker Remarks 

Williams (11/19) said that, with the three rate cuts, “we’ve gotten the adjustment that we need, at least for  now,” and policy is in a “good place.” He judged that “monetary policy is now somewhat accommodative.”  However, he warned of policy lags and the importance of acting expeditiously if needed: “you want to use  your tools when you think they’ll have their most positive effect.” He elaborated on the threshold for further easing: “Are these global factors or other things causing the U.S. economy to slow more than expected and below-trend growth? That would be an argument for somewhat more accommodation. Similarly, if inflation  were to move in the wrong direction on a sustained basis that would be an argument to consider more  accommodation.” 

Brainard (11/20) said, “it will take us time to see [the easing] work through the economy.” She said, “I want  to monitor, I want to wait for a little bit, as I assess how the outlook is adjusting.” To her, risks are still tilted to the downside. Rosengren (11/18) said, “We are in a good place.” Mester (11/18) also thought “the  economy’s doing well” and “we’re in a good spot right now to wait and see where inflation is going.” She disagreed with the October rate cut. Kashkari (11/21) noted the positive response of the housing sector to  Fed easing but also observed, “We’re seeing a little bit of wage growth, but we’re not seeing much wage  growth.” 

There were also multiple media reports that the Fed would pay greater attention to the distributional effects of its policies. One report summarized Powell’s (and Yellen’s) efforts to take into account input from various groups, including via the framework review. Another report focused on the efforts of the Minneapolis Fed.  Kashkari noted: “We had historically said: distributional outcomes, monetary policy has no role to play…That was kind of the standard view at the Fed, and I came in assuming that. I now think that’s wrong.” We previously flagged issues surrounding whether the Fed is conducting social policy. The report also paraphrased  a comment from Kashkari as “monetary policy can play the kind of redistributing role once thought to be the  preserve of elected officials.” 

Nowcasts (2019:Q4) 

Source Current One Week Ago Two Weeks Ago
Atlanta Fed GDPNow 0.4% 0.3% 1.0%
New York Fed Staff Nowcast 0.7% 0.4% 0.7%
CNBC/Moody’s Survey 1.5% 1.5% 1.5%

Recent Data 

There is increasing evidence of an upturn in housing. Single-family starts and permits increased 2.0% and  3.2% in November, respectively, extending a rebound from lows reached around the turn of the year. Existing home sales posted a solid gain in October and have likewise firmed considerably since early this year. 

The consumer sentiment index was marked up in the final results of the Michigan survey for November relative to the preliminary print. That series has moved up for three consecutive months now, though it remains slightly below the level that preceded its sharp decline in August. The measure of longer-term inflation expectations was also marked up a tenth, to 2.5%. 

Release Period Actual Consensus Revision to  Previous ReleasePreviously  Released Figure
NAHB Housing Market Index Nov 70 71 — 71
Housing Starts MoM Oct 3.8% 5.1% -7.9% -9.4%
Building Permits MoM Oct 5.0% -0.4% -2.4% -2.7%
Existing Home Sales MoM Oct 1.9% 2.0% -2.5% -2.2%
Markit US Manufacturing PMI Nov P 52.2 51.4 — 51.3
Markit US Services PMI Nov P 51.6 51.0 — 50.6
Markit US Composite PMI Nov P 51.9 — — 50.9
U. of Mich. Sentiment Nov F 96.8 95.7 — 95.7
U. of Mich. 5-10 Yr Inflation Nov F 2.5% — — 2.4%

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