Will Powell Sound More Dovish On Wednesday?

The short answer is: We doubt it. It's unlikely that his views on the economy and monetary policy have changed much since his hawkish interview on October 19 at the Economic Club of New York. So he is likely to maintain the same tone at his presser on Wednesday following the latest FOMC meeting. The message should remain the same. Monetary policy will have to remain restrictive until inflation falls closer to the Fed's 2.0% target.

Powell and his colleagues have been expecting that their tightening would cool the labor market. Today's data suggest it remains hot. Consider the following:

(1) Employment Cost Index. Q3's Employment Cost Index continued to moderate during the quarter but at a slower pace than during the previous few quarters. It was down to 4.3% y/y with wages & salaries and benefits up 4.5% and 3.9% (chart). Powell has said that he would like to see wage inflation measures closer to 3.0%. He figures that would be consistent with 2.0% price inflation if productivity is growing about 1.0%. We think that productivity is growing faster than that.