BY: Matthew Kimbrough
Portfolio Manager
The Decision
At the conclusion of today’s FOMC meeting, the Fed Funds rate was held steady, as expected, maintaining the current range of 4.25%–4.50%. It was NOT a unanimous decision. Both Michelle Bowman and Christopher Waller voted against this action and would have preferred to lower the target range for the Fed Funds rate by 25 basis points. This is the first time that multiple voting members have dissented since 1993. Another voting member, Governor Adriana Kugler, was absent and did not vote.
Trump, Powell, and the Politicization of Monetary Policy
It’s no secret that President Donald Trump is not a fan of Fed Chair Jerome Powell. Here are a few recent quotes from POTUS to that effect, courtesy of Bloomberg Television:
6/27: “I’d love for him to resign… he’s done a pretty lousy job…”
7/13: “Powell has been very bad for our country. We should have the lowest interest rates on Earth, and we don’t.”
7/16: “He’s a terrible Fed Chair.”
7/24: “I believe that the Chairman is going to do the right thing…” (i.e., – lowering interest rates)
But Fed Chair Jerome Powell is not planning on announcing early retirement. In response, he has typically refrained from any comment about President Trump during his press conferences, preferring to toe the line of central bank independence and focus on the task at hand—the Fed’s dual mandate.
During today’s press conference, Powell was asked directly whether comments such as the ones above were a threat to the Fed’s independence going forward. He had this to say in response:
“I think that having an independent central bank has been an institutional arrangement that has served the public well… What it gives us is the ability to make these very challenging decisions in a way that’s focused on the data, the evolving outlook, and the balance of risks, and not political factors.”
The opportunity was also present today to potentially characterize the votes of dissenting FOMC members as being politically motivated, but Powell chose to go the other direction, stating that the dissenting views led to “one of the better meetings that (he) can recall.” He also indicated that both Governor Waller and Governor Bowman would be releasing statements on their viewpoints in the near future.
The Statement
This meeting’s statement contained several amendments, which are highlighted in the chart below.
Quotes from Powell’s Press Conference
- “I would characterize (our policy rate) as modestly restrictive… It seems to me, and almost the whole committee, that the economy is not performing as if restrictive monetary policy were holding it back inappropriately, and modestly restrictive monetary policy seems appropriate.”
- “Changes to government policies continue to evolve, and their effects on the economy remain uncertain. Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen. A reasonable base case is that the effects on inflation could be short-lived, reflecting a one-time shift in the price level. But it is also possible that the inflationary effects could be more persistent, and that is a risk to be assessed and managed.”
The Market Reaction
Treasury yields remained up 1-3 bps after today’s statement was released, but increased further during Powell’s press conference. In response to some relatively “hawkish” comments during the press conference, the likelihood of a September rate cut, as measured by CME’s FedWatch tool, declined over 15%.
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