Economics Weekly: Powell Sticks to His Guns (Well, Kind Of...)

Friday, November 30, 2018

"Interest rates are still accommodative, but we're gradually moving to a place where they will be neutral. We may go past neutral, but we're a long way from neutral at this point, [emphasis added] probably."
– Fed Chairman Powell, 3 October 2018

"Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral [emphasis added] for the economy—that is, neither speeding up nor slowing down growth."
– Fed Chairman Powell, 28 November 2018

Financial market participants eagerly awaited speeches this week by Fed Chairman Jerome Powell and Vice Chairman Richard Clarida, looking for signs that the Fed was considering either a pause in the expected path of future rate increases or an actual reduction in that expected terminal rate, following a very turbulent October and November in the financial markets. In the end, while Vice Chair Clarida chose not to immediately bend to financial markets' whims, Chairman Powell, as the two quotes above show, felt the need to scale back his rhetoric from his October statement with regard to the neutral rate. Both speakers also made sure to reiterate the Fed's stance that policy is not on a preset course and is entirely data dependent. In this week's Economics Weekly we look at the Fed's current stance on policy, and what the Fed would likely want to see before lowering its dots.

For a copy of this report or to subscribe to the Economics Weekly or Economic Indicators reports, please contact your William Blair representative.

Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.

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