Powell’s semiannual testimony before Congress (see our commentaries on Day 1 and Day 2) was the principal communications event last week. Chairman Powell’s prepared remarks for his semiannual monetary policy testimony were largely consistent with his recent comments, though they were relatively watered down. He reiterated that the economy is strong and the outlook is positive, while emphasizing that there are significant uncertainties. He included the qualifying phrase “for now” in his description of the FOMC’s prevailing expectation of the appropriate policy path. In our view, “for now” does not necessarily signal a slower-than-anticipated pace of rate hikes. Rather, it was intended to underscore the conditional (or data-dependent) nature of the FOMC’s plan for gradually removing accommodation.
Powell commented on trade only in very broad terms, and he avoided being seen as supporting any particular policy. He was also asked about the Fed’s balance sheet plans. As expected, he said that the FOMC has not settled on a longer-run framework but will resume considering the issue seriously “fairly soon.”
Besides Powell’s remarks, the most noteworthy comments on Fed policy came from President Trump, via his interview with CNBC (published Thursday) and subsequent tweets on Fed policy (Friday morning). The FOMC, led by Powell, is extremely unlikely to be affected by such comments from the White House or the President. As Powell stated, it will concentrate on “carrying out the mandate [Congress has] given us.” The preponderance of economic data clearly indicates that risks to the inflation outlook are “roughly balanced” and the labor market is “close to full employment,” suggesting a continued need for gradual rate hikes. Only surprises in the incoming data and changes in the evolving forecast will alter the Committee’s judgment about the appropriate course of monetary policy (see our commentary on this topic).