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Powell Sees End to ‘Midcycle’ Adjustment; Policy ‘Likely to Remain Appropriate’

James Hyerczyk

Federal Reserve Chief Jerome Powell held a press conference after the Fed announced a quarter-point rate cut on Wednesday at which he indicated that future rate cuts are unlikely so long as conditions remain at current levels. Powell also indicated that the “midcycle” adjustment he has been talking about for the past five months is likely at an end.

“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the state of the economy remains broadly consistent with our outlook,” he told reporters at his post-meeting news conference.

Repeat Monetary Policy ‘In Good Place’

In his remarks to the media, Powell once again described monetary policy as being “in a good place” as “the baseline outlook remains favorable” for the economy.

Reporters noted that Powell repeatedly stressed the phrase “likely to remain appropriate” as well as emphasizing that the current rate will hold as long as “the outlook remains broadly in keeping with our expectations.”

Insurance Against Condition Shift

Powell did leave room for the Federal Reserve to change its mind if conditions should shift for an economy that is growing around a 2% rate with unemployment rate holding at a 50-year low of 3.5%.

Rate Hike? Really?

Powell said that before the Fed considers hiking interest rates again, he would need to see a “really significant” rise in inflation.

“Of course, if developments emerge that cause a material reassessment of our outlook, we would respond accordingly. Policy is not on a preset course,” Powell said.

Fed About Face Successful

At the start of 2019 when the markets were screaming for a Fed rate cut, the central bank was indicating the need for two additional rate hikes, then the data started to weaken as the trade war between the United States and China escalated. The Fed did what it thought was appropriate at the time, it stopped raising rates and it watched the economy. Finally, cutting rates in July, September and October.

“Overall, we continue to see sustained expansion of economic activity, a strong labor market and inflation near our 2% objective as most likely,” Powell said. “Our views about the path of interest rates that will best achieve these outcomes have changed significantly over the past year.”

This article was originally posted on FX Empire