On the March FOMC

We were dreading a policy error with the FOMC confusing an oil-driven supply-shock for inflation and ignoring its contractionary effect, and withdrawing the two remaining rate cuts in the Summary of Economic Projections. The projected rate cuts stayed in place, and Powell specifically said it is “standard learning” to look through oil shocks. Yet with policy admittedly restrictive to begin with, and the FOMC statement worrying about uncertainty arising from the conflict in the Middle East, why not cut rates now? Why only one dissent – with Miran, at the same time, raising by 50 bp his prescription for the year-end funds rate? We came into the year expecting three rate cuts. Warsh can still make that happen, but it’s getting to be a heroic forecast. Powell said he would stay on as chair until replaced and on the Board until the DOJ’s prosecution is resolved – and perhaps longer. He has thrown down the gauntlet: Trump knows what he has to do to get Warsh in place and be rid of Powell.