Powell's Last January: The Fed Holds and Warns Against Assuming More Cuts
In one of his final meetings as chair, Jerome Powell said it was hard to look at the data and conclude that policy was significantly restrictive, effectively closing the door on a near-term reduction.
WASHINGTON — The Federal Reserve left its benchmark rate unchanged at 3.50% to 3.75% on Wednesday, pausing after three consecutive cuts and signaling that the bar for further easing had risen considerably.
Chair Jerome Powell, presiding over one of his final meetings before the expiration of his term, told reporters that it was hard to look at the data and say that policy was significantly restrictive at current levels — a formulation that markets read, correctly, as an argument against cutting again soon.
Where the economy stood
The picture in January was mixed in a way that supported waiting. Inflation was above target but not accelerating. Payroll growth was positive but modest, and the statistical agencies were still working through the distortions left by the autumn shutdown. Financial conditions had eased substantially since the summer, with equity indexes near records and credit spreads tight.
Easy financial conditions are, in the Fed's framework, a reason to be more patient rather than less: if markets are already doing the work of supporting demand, additional rate cuts have a smaller marginal benefit and a larger inflation cost.
The succession in the background
Two days after the meeting, the White House announced its intention to nominate Kevin Warsh as the next chair. That set in motion a confirmation fight that ran through the spring and ended with the narrowest confirmation vote a Fed chair has received.
The pause that lasted
At the time, the January hold looked like a pause between cuts. It turned out to be the beginning of a long stretch of inaction. A month later, an oil shock reset the inflation outlook, and the committee has held at the same range at every meeting since.
