"In the Near Term, the Election Will Have No Effect on Policy" - Powell

The Fed cut 25bps, then Powell marched out in his purple tie and led off with that statement.

Then, “We are on a path towards a more neutral stance and that has not changed at all.”

Then, “We know the destination but don’t know the pace.”  He continued, “But nothing in the economic data suggests the Committee needs to be in a hurry to get to neutral.”

Pretty boring press conference other than a testy exchange (included at the end).  I would characterize it as slightly more dovish than expected.  Powell basically said the Fed has not begun to factor in the potential impact of the Trump win and the ripple effects from that.  

• “We don’t start modeling things like tax cuts until they are closer to becoming law.”

“The precise path is less important than the general arc.”

• He repeatedly said they will be more sensitive to risks/noise after they get closer to neutral (whatever that is).
• “As we approach levels that are plausibly neutral, we could slow the pace of cuts.”
  • This feels like a reinforcement of some amount of cuts before they start considering a change of pace or outright pause.  

Dual Mandate (italics his emphasis, not mine)

• “The labor market has cooled a great deal from two years ago.”
  • “The labor market is going to continue to cool.”
• “Inflation has moved down a great deal from its high two years ago.”
  • “If you look at Core PCE over 3 and 6 months, it’s just 2.3%”
  • “...a couple of data points, good or bad, won’t really change the pattern now that we are this far down in the process.”
  • “We would be concerned if we saw inflation expectations anchoring at a higher level, but that’s not what we’re seeing.  We will not allow inflation expectations to drift upward.”

Odds of a December cut are at 67%. This was 95% on 10/1/24.  

• Remember, 60% is the threshold.  If the odds for a cut are over 60% and the Fed plans on pausing, they will correct expectations with Fed-speak.

Assuming data comes out the way it has been (eg, no huge surprises one way or another), I think December is almost a definite 25bps cut.  January is still a likely cut.  That would put FF at 4% - 4.25% and I think they will be more open to a pause at that time. 

The T10 is down 11bps to 4.32%.  The T2 is down 6bps.  CPI on Wednesday.  

One last fun interaction…

Q: If the President-elect asked you to leave, would you go?  

A: No.

Q: Has the Fed investigated the legalities of the president firing or demoting the Fed Chair?

A: Not permitted under the law.

Q: Excuse me?

A: Not.  Permitted.  Under.  The.  Law.