November FOMC Meeting Comes in Largely as Expected, With Powell a Bit Dovish on Inflation and More Optimistic on Recession
- Powell continues to describe the Fed’s current easing cycle as a “recalibration” in policy, which is “carefully, patiently” taking it to a “more neutral” stance.
- Despite lower recession risks and better than expected activity data, owing to a fairly sanguine inflation outlook, Powell sounded a bit less dovish rather than more hawkish.
- Powell’s framing of the statement tweaks, when combined with the above, suggest that a December cut remains the current baseline.
- With 2.7x 25bps cuts priced in by June-25 markets have largely, if not fully, adapted to the fading recessionary tail and higher post-covid neutral rate.
- Powell’s responses to all the questions about potential future policy shifts (fiscal, tariff, etc) centered around the Fed’s dual mandate goals, the importance of the data itself in driving Fed policy, and the Fed’s technocratic approach to updating its forecasts and risk assessments in response to non-Fed policy actions, FCI shifts, and other shocks. In the near-term there will be “no effect” from these policies.
- When pressed, Powell forcefully asserted the Fed’s independence. When asked if he would resign if asked to, the answer was a concise “no.” Similarly, he said that demoting Fed vice chairs or firing governors is “not permitted under the law.” This echoes the forceful assertion of Fed independence we heard from, the also Trump appointed, Governor Waller recently. Trump will get to appoint a Fed Chair after Powell leaves and replace Gov Kugler (both in 2026), but it will remain a quite politically mixed body.
More detailed thoughts on what was, all things considered, about as close to expectations as a press conference can get.
- The removal of some of the more marginally positive language in the statement around “further” progress on and “greater confidence” that inflation is moving to target felt like a notable, slightly hawkish, shift when it was released. Instead, Powell characterized this as removing the initial conditionality in the statement around beginning the easing cycle period rather than a signal about the recent data and the Fed’s risk assessments.
- Across the press conference seemed quite intent on conveying a skepticism of the Fed’s ability to confidently engage in precise forward guidance at present (“we don’t think it’s a good time to be doing a lot of forward guidance”) and a determination not to micro-manage the process when they are making projections.
- The very general forward guidance remains that the Fed is recalibrating its policy stance towards a more neutral level of rates. This has been a consistent refrain across Fed officials since the September meeting, especially in October as the data bounced a bit, and Powell was fully consistent with that message.
- The Fed’s sees the economy as in “quite a good place.” Recent data have added confidence to that view, as “in the main the economic activity data have been stronger than expected” since the last meeting.
- Powell’s language around pace and ultimate destination continue to lean towards a somewhat higher than pre-covid view of neutral, likely somewhat assuaged by the outlook shifts that the recent data flow and revisions would have brought on, but this will be an adaptive and gradual process.
- As telegraphed by the September dot plot which had a gradually slowing pace of Fed cuts after the first 50bp Powell acknowledged “the right way to find neutral is carefully, patiently” with the pace of cuts slowing as you get close to plausible estimates of neutral (admittedly, while Powell was hesitant to comment too much . But this is “something we are just beginning to think about.”
- As was quite apparent during the intermeeting period, Powell’s recession concerns have notably eased, saying “some of the downside risks to economic activity have been diminished, with the NIPA revisions in particular.” These revisions seem to have been one of the two or three most important data points of the year given how they appreciably shifted the baseline outlook and risks around it, eliminating 2 of 3 plausible causal recession stories.
- Powell’s description of the labor market remains consistent with what we have heard for much of the year. Taken as a whole, “the labor market has cooled a great deal from its overheated state of two years ago and is now, essentially, in balance… We don’t need further cooling to achieve our inflation mandate.” He noted that the labor market is still cooling slightly, but this does not seem to be happening rapidly enough to cause great consternation.
- In what was the most dovish theme on the day, Powell noted that the labor market is not a significant source of inflation presently on a few different occasions and that much of the inflation we are continuing to see is long-lag driven rather than caused by spot developments. He has said as much before but when combined with his comments that there are “several” key areas of catchup inflation, core services and core goods which are more or less target consistent in his view, and framing of the September inflation print as a “bump” it seems that the Chair’s inflation outlook is fairly sanguine at the moment. That isn’t to say that durably ensuring its sustainable return to target won’t impart a slightly hawkish level bias to rates (more neutral vs neutral) but rather that the m/m wiggles in inflation aren’t current his primary concern, so long as underlying trends remain well behaved.
