State Street Comments on Jerome Powell’s Inaugural Speech

In reaction to today’s comments from Jermone Powell, chair of the US Federal Reserve (Fed), Michael Metcalfe, global head of macro strategy at State Street Global Markets; and Sophia Ferguson, senior portfolio manager for active fixed income and currency at State Street Global Advisors, offer their views.

Metcalfe comments, “Powell’s first semi-annual monetary policy outlook was both the same and different to his predecessors. He was optimistic on the economic outlook as headwinds have turned to tailwinds and stuck to the line that the dip in inflation was due to transitory factors; noting the recent inflation acceleration. On this latter point this is confirmed by our own readings from online inflation courtesy of PriceStats*. This data forewarned of the surge in the official inflation data in January, but has since fallen back closer to seasonal averages in February.

“As similar as his depiction of the economic outlook was, two factors did stand out. He was explicit in suggesting that market volatility would not derail the tightening cycle. A lesson we have learned well this month. And as he did in a similar speech almost a year ago, he also acknowledged the role of monetary policy rules, at least as a starting point for policy decisions. This will only reinforce that policy is on track to the neutral rate and perhaps beyond depending on the inflation path in the coming year.”

Ferguson comments, “There is no indication from Powell’s written commentary as to whether he’ll lean on the dovish or hawkish-side of the spectrum. Similarly no reference was made as to whether the equilibrium real interest rate, R* would go higher, or whether fiscal policy would lead to higher long-term growth. While it is clear the economic backdrop has improved, Powell’s comments are consistent with a Federal Reserve that will continue to be data dependent.”