US: Trump To Deliver Remarks At Turning Point USA Event Shortly

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Rates In Neutral Range: Powell fielded some mentions of possible rate hikes, but overall he pushed back against any notion that the Committee was considering adopting a hiking bias. On the January minutes' mention that some participants wanted to change the rate guidance from the current easing bias, to reflect two-sided risks to rates, Powell said " it did come up today, the possibility that our next move might be an increase did come up at the meeting, as it did at the last meeting. The vast majority of participants don't see that as their base case. And of course, we don't take things off the table." 

• On how high oil prices would have to get, and for how long, before the FOMC considered hiking rates: "I'm not going to give you an example or specific answer. You know, we're prepared to do what needs to be done, but I wouldn't want to hypothesize about what that might be."
• He said that the Committee isn't "comfortable" with the "balance" in the labor market, which he says is in “a zero employment growth equilibrium” and has a "feel of downside risk". Re the labor market, “a number of indicators that suggest a degree of stability, but the thing that I think a good number of people on the Committee are concerned about is just the very, very low level of job creation."
• He characterized the current restrictiveness of rates as being at the high end of neutral, potentially signalling that they had some room to come down: “The rate is, you can characterize it as in the high end of neutral, or you can carry it characterize it as perhaps mildly restrictive, even modestly restrictive. No one knows for sure, but it's in that range, where it's somewhere around the border line between restrictive and not…we also think it's important, though, to keep policy either mildly restrictive or close to that, but not too restrictive. Because of the weakness in the downside risk in the labor market.” 

Powell Staying On Longer Than Expected? The other surprise is that Powell addressed his future at the Fed after his Chairmanship is done in May, a subject he has been reluctant to speak about previously. He said he is prepared to continue to serve as Chair until his replacement (Kevin Warsh) is confirmed by the Senate (serving as Chair “pro tem” if his successor hasn’t yet been confirmed), and that he has “no intention of leaving the Board until the [Department of Justice] investigation [into the Fed] is well and truly over, with transparency and finality.”

• The bigger surprise yet was that “on the question of whether I will serve as a Governor after my term ends and the investigation is over, I have not made that decision yet.” Leaving the Board after being replaced as Chair is customary; if he stays on, then the Trump administration would have one less seat to influence policy until his Board term expires in 2028.
• Indeed, Powell has only one meeting remaining as Chair, in April, should Warsh be confirmed on schedule. That meeting looks unlikely to produce a change in rates.

No Core Goods Progress, No Rate Cuts: On the subject of near-term policy, Powell warned that "the rate forecast [in the SEP] is conditional on the performance of the economy. So if we don't see that progress, then you won't see the rate cut." This was probably the most hawkish part of the press conference. In particular he said that progress on core goods inflation was the “main” criterion for determining whether further easing would be possible (while adding that inflation expectations remain important).

• Overall he said current rates were "appropriate", and "within a range of plausible estimates of neutral", and that last year's "normalization of our policy stance should continue to help stabilize the labor market while allowing inflation to resume its downward trend toward 2%".
• But he adds "the implications of events in the Middle East for the US economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy. " Overall, if higher oil prices persist, "the net of it, of the oil shock will still be some downward pressure on spending and employment and upward pressure on inflation of course. "