Will Powell Address Market’s Dovish Expectations?

Powell may stress independence when it comes to Trump’s pressure, but will the Fed stand its ground against a backdrop of weakening economic data, or cut rates like the market expects?
James Hyerczyk
Fed Chair Jerome Powell

Federal Reserve Chair Jerome Powell took some time on Monday, while introducing a film on Marriner Eccles, former Fed Chair from 1934 to 1948, to push back a little against President Trump’s pressure to aggressively cut interest rates, saying that the central bank must be “absolutely free” from politics.

However, he did not address policy like he did last Friday and likely later this week. His comments may have also been a shot against critics who claim Fed policymakers accommodated the president when they cut rates in July and September.

“Perhaps most importantly from my perspective as Fed Chair, he is responsible more than any other person for the fact that the United States today has an independent central bank – a central bank able to make decisions in the long-term best interest of the economy, without regard to the political pressures of the moment,” Powell said.

He further added, “I leave you with this statement from Marriner, inscribed on a plaque in the Eccles Building: “The management of the central bank must be absolutely free from the dangers of control by politics and by private interests, singly or combined,” Powell said.

Fed’s Job to Keep Economy in ‘Good Place’

Late Friday, Federal Reserve Chair Powell gave a speech, which could give investors some insight as to what to expect from Wednesday’s monetary policy meeting minutes. In his talk, Powell described the U.S. economy as being solid, noting the central bank must do what it can to keep it there.

“While not everyone fully shares economic opportunities and the economy faces some risks, overall it is-as I like to say-in a good place,” Powell said in prepared remarks delivered at a “Fed Listens” event in Washington. “Our job is to keep it there as long as possible.”

“While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges-from low growth, low inflation, and low interest rates,” Powell said, adding the Fed is “examining strategies” that will help it achieve its inflation goal of 2%.

Will Powell’s Commentary Match Market’s Dovish Expectations

Powell will give another speech on Tuesday at 17:50 GMT. In the wake of rising expectations for a rate cut at the end of October, investors are hoping he addresses last week’s string of weak U.S. economic reports and their potential impact on Fed policy.

The Fed has cut rates twice since July, blaming trade tensions, slowing global growth and muted inflation for the moves. Since the last cut in September, Fed officials have offered few clues as to whether they will cut rates again at the end of the month, but the financial markets are indicating they may need to.

As of Monday’s close, the CME FedWatch Tool indicates a 70% probability of a 25-basis point rate cut. This is up from 20% about a week ago, but down from 93.5% reached last Thursday.

Powell may stress independence when it comes to Trump’s pressure, but will the Fed stand its ground against a backdrop of weakening economic data, or cut rates like the market expects?

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