Powell Q&A: Today was a ‘closer call’ but we decided it was the right call

• We don’t think we need further cooling in the labor market to get inflation down to 2%
• Labor market is quite gradually cooling
• We see the inflation story as broadly on track
• Job creation is below the level that would hold jobless rate consistent
• Downside risks to labor market have diminished but still cooling
• The actual cuts next year will be in regards to data, not anything we wrote down today
• As for additional cuts, we’re going to be looking for further progress on inflation or weakness in jobs
• As long as jobs and inflation are solid, we can be ‘cautious’ about cutting

I think that speaks strongly for itself. We will see what jobless claims are tomorrow and we will go from there. The baseline is strongly pointing to leaving rates unchanged in January but we get three jobs reports before the March meeting and it’s priced at roughly 50/50.

• We had a year-end inflation forecast and ‘it’s kind of fallen apart’
• Says that was probably biggest factor in dots

The market doesn’t like to hear the Fed chair say ‘it’s kind of fallen apart’ in any context.

• It’s premature to make any conclusions about tariffs, don’t know what countries, what size, how long
• We are at the stage of thinking through questions, not getting definitive answers
• A drop to 2.5% core inflation next year would be ‘significant progress’
• ‘extent and timing’ language shows where we are at a point where we can slow the pace of cuts
• We have to continue to have restrictive policy to get inflation to 2%
• Also notes they need to keep a close eye on employment and keep it where it is

This article was written by Adam Button at www.forexlive.com.