Fed Chair Jerome Powell wants to make sure we all get the message he delivered at his presser last Wednesday. So he appeared in an interview on "60 Minutes" Sunday night. His simple message is that almost all the members of the FOMC expect to be cutting the federal funds rate (FFR) this year. They are happy with the progress that has been made in bringing inflation down over the past six months. They would like to see a few more months of good inflation data before actually lowering interest rates. The inflation rate doesn't have to fall exactly to 2.0% before the FOMC starts to cut the FFR. The first rate cut will occur sooner (later) if the labor market seems to be weakening (strengthening).
We were surprised that Powell didn't push back on the number of rate cuts expected by the market. He also didn't acknowledge that cutting rates might fuel a 1990s-style bout of irrational exuberance. He must have felt that these subjects were too wonky for a popular TV news show. He did mention his concern about current geopolitical turmoil. He also observed that fiscal policy is on an unsustainable course.
The 12-month FFR futures was 4.18% today, implying five 25bps cuts in the FFR over that period (chart). We still expect two to three rate cuts this year.
