On the November FOMC: What, Me Political?

As expected, a 25 bp rate cut. No dissents, and statement language intended to enshrine recognition of a mandate-consistent economy at maximum employment and with stable prices. In the presser, Powell sharply deflected questions designed to elicit reaction about Trump’s possible policies. He flatly stated he would not resign if asked, and that he believed a president lacks the power to fire a Fed chair. In response to many questions, he edged toward admitting that the “dot plots” at the December FOMC are too low, and that the neutral rate is likely higher than previously admitted. That means that the terminal rate of this easing cycle will be higher than previously expected, but more in line with what has been reflected in the fed funds futures markets already for several weeks. That is a welcome development, as it implies a higher-growth environment with a higher neutral rate.