On Powell at the Washington Economic Club

In a colloquium today Powell ratified the market’s whipsaw reversal of expectations for the path of the funds rate following Friday’s payroll report, adding a rate hike and taking away one-and-a-half cuts. He acknowledges that disinflation is underway without any weakening of the labor market, and yet clings to a policy framework holding that a strong labor market causes inflation. He remains silent on the year-over-year contraction in the money supply and its implications for outright deflation. His policy framework is confused, and he seems to welcome the confusion this causes for markets, keeping financial conditions tight. There will be two weak CPI reports and one less-strong jobs report before the March FOMC. It's a tough call, but we still say last week’s rate hike was the last one.