MNI INTERVIEW: Powell Leaning Toward September Cut - Blinder

Federal Reserve Chair Jerome Powell suggested he's leaning toward resuming interest rate cuts at the September meeting, but he's hedging his bets on data and issuing a warning that the Fed won't be pushed around by political pressure, former Fed Vice Chair Alan Blinder told MNI.  

"It wouldn't surprise me or many other people if there was a cut at the next meeting. And if I were a trader, I would bet on a cut at the next meeting," Blinder said in an interview on the sidelines of the Kansas City Fed's annual Jackson Hole conference. (See MNI POLICY: Job Revisions Pressure Fed To Cut In September)

Powell in his hotly anticipated keynote said early Friday: "The baseline outlook and the shifting balance of risks may warrant adjusting our policy stance."   

He stopped short of stating the timing – or direction – of that move, Blinder noted. "He didn't even lock in the notion that the next move would be a cut," he said. 

The context of the speech – particularly the weak July jobs report and significant downward revisions to the two previous months – suggest cuts. "So it's very, very likely, but if you just listen to what he said, I don't think you would get that," Blinder said.  

DATA DEPENDENT

Higher tariffs will translate to a one-off move higher for prices, but it will happen slowly, as Powell correctly put it, Blinder said.  

"I suspect it will dribble out over a substantial amount of time. I wouldn't be surprised if over a year."

The Fed must stay data dependent, and one more jobs report and inflation report will come before the FOMC meets in September. 

"Suppose the payrolls numbers turn around. Inflation looks like it's getting a little worse, but only a very little worse, but maybe it gets a little less than little worse, so any of those things are still possible," Blinder said.  

After months of being harangued by President Trump to drop interest rates, Powell pointed added the FOMC will "never deviate" from making policy decisions based solely on data and implications for the economic outlook and the balance of risks. 

"That was aimed at anyone who though the Fed was going to cave politically," Blinder said.