Fed Chair Powell—I Still Haven’t Found What I’m Looking For…

The Federal Reserve’s (Fed) March policy meeting has generated very vocal reactions by commentators and market participants. This time I think the excitement has gone well beyond what the substance of the meeting warranted and tries to read way too much into the Fed’s new economic projections and into Chair Jerome Powell’s words, in my view. Financial markets’ reaction so far, I’m happy to say, has been slightly more muted than on previous occasions when Powell was perceived as dovish.

Let me say one thing up front: I do think this is a dovish Fed, and that Powell’s own preferences are on the dovish end of the monetary committee. But I also think this is a pragmatic Fed, which has already gotten burnt by high and stubborn inflation.

With rates expected to stay on hold, attention focused on the new economic projections. The prevailing narrative about the March meeting has emphasized the fact that the Fed’s new economic projections envision higher inflation and stronger growth, but the median rate forecast implicit in the dots still implies three rate cuts this year. Therefore, the argument goes, the Fed has given a strong signal that it is determined to cut rates and willing to tolerate higher inflation.

Fed Dots Still Imply 3 Cuts This Year

But this is one occasion where it’s important to look at the trees, not just the forest: Looking at the individual dots shows that, on net, five governors have reduced their projected number of cuts. Nine out of nineteen members now see two cuts or fewer versus ten who envision three or more (with only one expecting more than three). If just one more governor had lowered a dot, the median would have ticked down to only two rate cuts, and the narrative would have changed.

Next, let’s consider what Powell said during the press conference.