On the June FOMC

As markets expected, no rate cut. And no Powell gaffes. The statement dropped the key word “patient,” signaling the next move is a cut, citing “uncertainties” – which means trade risks. This echoes Yellen’s dovish turn in 2016, when she apologized for lift-off by citing “uncertainty.” In Powell’s hands, it introduces a “blame Trump” strategy that will allow the Fed to cut rates, even though Trump demands it, by arguing that doing so protects the economy from the president’s bad policies. Bullard dealt Powell his first dissent, perhaps the leading edge of a movement to wrest policy control from him. The “dot plots” point frankly to a cut this year. While the statement language wasn’t candid about the Fed’s failure to restore inflation to target, the Summary of Economic Projections strongly downgraded core PCE inflation for 2019.