Federal Reserve Chair Jerome H. Powell just left everyone guessing about what the central bank will do next. And that’s exactly what investors wanted.
The Fed met expectations by trimming its benchmark interest rate by a quarter-point for the second time in a row.
Then the Fed chief parried questions from reporters seeking clues about whether more cuts are on the way. He made equivocal remarks that effectively painted a Rorschach inkblot onto which investors and other market watchers could project what they hoped to see.
“Powell held his cards close to his chest and would not commit to additional shifts in policy,” Grant Thornton chief economist Diane Swonk wrote. “Powell dodged all questions regarding the course of rates going forward and where he sits on the spectrum of views on display within the [Federal Open Market Committee]. He underscored that the bulk of the committee is now moving on a meeting-by-meeting basis."
Headlines out of his latest news conference reflected the uncertainty, presenting a range of takeaways seemingly at odds with each other:
LOL. Pick your own interpretation. pic.twitter.com/kQhmvUTzbp— Ivan the K™🆒 (@IvanTheK) September 18, 2019
The result was a too-rare phenomenon for the embattled Powell: Stocks rallied after he spoke. They dipped first on snap judgments that Powell was signaling no further rate cuts this year but turned around as his ambiguity sank in and closed in the green. The Dow Jones industrial average gained 36 points, or .13 percent, on the day:
The Dow has closed in positive territory on just two of the other 12 days when Powell has held a press conference. The index shed 1.3 percent on the day of his last appearance, for example, after the Fed cut rates for the first time since the financial crisis. Powell trampled on that news in his back-and-forth with reporters by sending what investors interpreted as hawkish signals about where the central bank was headed.
Powell’s approach was dictated in part by necessity. He presides over a Federal Open Market Committee as divided as any in years. The split was evident again in the vote, as three regional Fed presidents dissented — a first in Powell’s tenure. (Two, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, wanted to leave rates untouched. The third, St. Louis Fed President James Bullard, wanted a deeper cut.) Most Fed officials favor staying the course from here. Specifically, five of the 17 participants in the meeting objected to the Fed's two rate cuts this year; five want no further rate cuts; and seven want to cut rates further.
From the New York Times's Neil Irwin:
This is a very divided committee. Implication of the 2019 dots is that five FOMC participants (not all of whom have a vote) are against this rate cut, while seven believe another rate cut this year will be justified. pic.twitter.com/4nUmYWmE2u— Neil Irwin (@Neil_Irwin) September 18, 2019
Powell, for his part, dismissed the notion the widening dissent poses a problem. “This is a time of difficult judgments and, as you can see, disparate perspectives. And I really do think that’s nothing but healthy,” he said. “And so, I see a benefit in having those diverse perspectives, really.”
But Powell’s two-step in his news conference also speaks to the squeeze facing the central bank. “Fed officials are trying to help keep the economy growing without fanning inflation or squelching growth,” my colleague Heather Long writes. “The economy is sending mixed signals about whether it might slow markedly next year or continue chugging along. And a strong economy is key to [President] Trump’s reelection effort in 2020. He has tried to frame the Fed as a primary culprit if there’s any slowdown.”
Indeed, Trump lashed out at his handpicked central bank chief on Twitter within minutes of the rate cut announcement, calling him a “terrible communicator.”
Jay Powell and the Federal Reserve Fail Again. No “guts,” no sense, no vision! A terrible communicator!— Donald J. Trump (@realDonaldTrump) September 18, 2019
Powell declined to respond to Trump’s tweet or his other recent attacks (as Heather notes, since the Fed’s last meeting at the end of July, “Trump has tweeted or retweeted 43 times criticizing the central bank and calling for deeper rate cuts. He has called Powell a ‘bonehead’ and ‘enemy’ for not lowering rates faster.”)
“I’m not going to change my practice here today of not responding to comments or addressing comments made by elected officials,” Powell said. “I will just say that I continue to believe that the independence of the Federal Reserve from direct political control has served the public well over time, and I assure you that my colleagues and I will continue to conduct monetary policy without regard to political considerations.”
But he also made clear, without invoking Trump, that the president’s trade war and slowing global growth are driving uncertainty that is dragging on the domestic economy. “Trade developments have been up and down, and then up, I guess, or back up, perhaps, over the course of this inter-meeting period. In any case, they’ve been quite volatile. So we do see those risks as actually more heightened now. We’re going to be watching that carefully,” he said, later adding, “we do feel that trade uncertainty is having an effect. You see it in weak business investment, weak exports.”
To his point, the Business Roundtable’s latest quarterly survey of top CEOs found chief executives downgrading their growth forecast for this year from 2.6 percent to 2.3 percent. And the lobby group's CEO Economic Outlook Index dropped 10.3 points from last quarter to 79.2, below that metric’s historical average and its lowest reading during the Trump presidency. Business chiefs’ plans for hiring and investment, and their sales expectations, all fell, too.
JPMorgan Chase CEO Jamie Dimon, who chairs the group, said while there “will be a recession again,” his “own gut tells me it’s not imminent.” In the meantime, he chalked up the increasingly dour outlook among top executives to trade uncertainty.
“This quarter’s survey shows American businesses now have their foot poised above the brake, and they’re tapping the brake periodically,” Roundtable CEO Josh Bolten said in a statement. “Uncertainty is preventing the full potential of the economy from being unleashed, limiting growth and investment here in the U.S.”
— OECD slashes growth forecasts around the world. MarketWatch's Steve Goldstein: "The Organization for Economic Cooperation and Development on Thursday downgraded its assessment of the global economy to the worst growth rate since the financial crisis. In its interim economic outlook, the Paris-based agency cut its global GDP view to 2.9% this year, a downgrade of 0.3 percentage points, and its growth view for 2020 was reduced by 0.4 percentage points to 3%.
"The OECD cut its view of U.S. growth by 0.4 points in 2019 to 2.4% and by 0.3 points in 2020 to 2%. China’s GDP forecast was cut by a tenth in 2019 to 6.1% and by 0.3 points in 2020 to 5.7%. The OECD said the impact of 2019 U.S-China trade tensions would be to reduce Chinese GDP by a full percentage point, U.S. GDP by 0.7 points and world GDP by 0.6 points."
— No-deal Brexit looking more likely. Bloomberg's Ian Wishart and Tim Ross: "Brexit from afar is looking like a disaster about to happen. One European official, watching the situation up close, compared it to two cars driving at high speed toward each other with each expecting the other to swerve out of the way first. The brinkmanship surrounding the U.K.’s departure from the European Union has been compared to a game of chicken before now.
"Trust is in short supply, and there’s a sinking feeling that the desire to get a deal done to avert the potential economic catastrophe of a no deal is evaporating. Conversations with officials on the either side of the negotiating table paint a grim picture of the state of play as an Oct. 31 deadline looms."
— What's behind repo market turmoil. NYT's Matt Phillips: "Investors take for granted that the Federal Reserve controls interest rates. Rarely do they have to think about how. But a surprisingly lively couple of days in short-term money markets has meant that the 'how' became nearly as important as the 'why.' The stress started on Monday in the market for repurchase agreements, or repos.
"The repo market channels more than $1 trillion in funds through Wall Street every day, usually without fanfare. That money is used to pay for the day-to-day operations of big banks and hedge funds. Then the Fed’s key interest rate, known as the federal funds rate, hit 2.3 percent on Tuesday. That’s above the central bank’s target, and the rise reflected unexpected strains... The Fed poured new money into markets for a second straight day and said that it would cut what it pays banks to keep excess reserves parked with it... There is little reason to worry that an economic catastrophe is in the offing."
— Trade groups team up to fight Trump’s tariffs: “Nearly two dozen U.S. lobbying groups have joined forces to try to rein in [Trump’s] power to unilaterally impose tariffs amid growing concern about the negative economic impact of his trade policies,” Reuters’s Andrea Shalal reports.
"Led by the National Foreign Trade Council, the groups on Wednesday said they had formed the Tariff Reform Coalition to urge Congress to wrestle back greater control of trade policy and increase its oversight of the president’s use of tariffs … The 23 groups outlined their concerns in a letter to the two congressional committees that oversee foreign trade, the House Ways and Means Committee and the Senate Finance Committee.”
- Who signed the letter: “The letter was signed by large U.S. trade associations, including the Grocery Manufacturers Association, the National Retail Federation, the Association of Global Automakers, and the American International Automobile Dealers Association.”
— Apple spars with the E.U.: “Apple accused the European Commission of misunderstanding its business on day two of the iPhone maker’s appeal against a $14 billion tax order, in a dispute that is key to the EU’s drive to collect more taxes but which could also run for years,” Reuters’s Foo Yun Chee reports.
“The case centers on tax rulings granted by Ireland to two Apple businesses in the country, Apple Sales International and Apple Operations Europe. The rulings reduced Apple’s tax burden for more than two decades — to as low as 0.005% in 2014, according to the Commission, although Apple disputes this."
— Steel industry is struggling: “U.S. Steel Corp. said it expects to report a wider loss than analysts were expecting, the third American steelmaker in three days to warn on their outlook. The shares fell,” Bloomberg News’s Joseph Richter and Joe Deaux report.
“The Pittsburgh-based company cited a December fire at its Clairton coke-making facility and restructuring charges. It expects a loss of 35 cents a shares for this quarter, compared with a 6-cent loss that was the average estimate of analysts, the company said in a statement.”
— Newsom sets up gig economy fight in California: “California Governor Gavin Newsom signed a sweeping new law that could force gig companies like Uber Technologies Inc. and Lyft Inc. to reclassify their workers as employees,” Bloomberg’s Josh Eidelson reports.
“The hotly contested legislation, Assembly Bill 5, dictates that workers can generally only be considered contractors if they are doing work that is outside the usual course of a company’s business. The law codifies a 2018 state supreme court ruling, and applies it to a wide range of state laws. It could upend the business models of companies that depend on armies of independent contractors, who aren’t guaranteed employment protections like minimum wage and overtime."
— FedEx shares plummet: “FedEx Corp. shares plunged the most in a decade after the company’s global Express business showed its vulnerability to global trade disruptions,” the Wall Street Journal’s Paul Ziobro reports.
“The Memphis, Tenn.-based delivery giant on Tuesday cut its earnings guidance for the fiscal year citing lower revenue projections in its Express unit, which ferries packages and cargo by planes around the world. With weaker macroeconomic conditions and uncertainty stemming from trade disputes across the globe, FedEx foresees fewer shipments moving across borders.”
— FAA chief won’t okay Boeing 737 Max fix until he flies it: “Federal Aviation Administrator Steve Dickson says he won’t allow the Boeing 737 Max jets return to the skies for service until he personally flies the plane himself,” CNBC’s Phil LeBeau reports.
“Dickson’s decision to fly the Max before giving it final approval for commercial service is a new development. The official process calls for Boeing to file for re-certification after a test flight that includes one pilot from Boeing and one pilot from the FAA.”
— Another state is opposed to the T-Mobile-Sprint merger: “Pennsylvania is joining more than a dozen states that have filed a lawsuit aimed at stopping T-Mobile US’s $26 billion purchase of Sprint, New York Attorney General Letitia James said in a statement,” Reuters’s Diane Bartz reports.
— CFPB probes Bank of America for fake accounts. American Banker's Kevin Wack: "As part of a probe that grew out of the Wells Fargo phony-accounts scandal, the Consumer Financial Protection Bureau is investigating whether Bank of America also violated federal law by opening credit card accounts without customer authorization.
"The civil investigation of BofA came to light Tuesday when the bureau posted documents online that detail its legal wrangling with the Charlotte, N.C., company. Bank of America has argued that a March 2019 demand for emails and other records is unduly burdensome, while also calling on the agency to close its investigation. CFPB Director Kathleen Kraninger denied the bank’s petition in July."
— The U.S. stock market eclipses those of the rest of the world. Via Liz Ann Sonders, chief investment strategist at Charles Schwab & Co.:
- The National Association of Relators releases its U.S. existing-home sales figures for August.
- The CFPB holds a symposium on behavioral economics, featuring remarks from its director, Kathleen Kraninger.
From The Post's Tom Toles:
From the New Yorker:
Money is seen in President Donald Trump's back pocket as he boards Air Force One in Mountain View, California. More photos of the day: https://t.co/MBzaidtbDd 📷 @tombrennerphoto pic.twitter.com/E2UY0gQQMU— Reuters Pictures (@reuterspictures) September 18, 2019