Powell stays the course on the economy; takes back QT auto-pilot comment

Fed’s Powell kicked off the annual meeting of the American Economic Association highlighting strong labor data and gradual increase in wages. He noted the data does not raise concern about too high inflation.  Powell did rationalize yesterday’s massive ISM miss as coming off historic highs, but then he clearly stated the Fed is ready to adjust policy quickly if needed.   When asked about Quantitative Tightening (QT), he said we would no hesitate in making a change, thus taking back the auto-pilot comment.  Risk appetite accelerated on his comment that the Fed will be patient with rate hikes.

Stocks extended gains and the dollar was softer against the high-beta currencies  following his Powell’s initial comments.

Powell has been heading the Fed for almost 11 months and he has had his share of rookie mistakes.  On October 3^rd, Powell said that the Fed “may go past neutral.  But we’re a long way from neutral at this point.”  That comment ended the bull market run with US equities.  Powell’s pivot eventually occurred at the NY Economic Club on November 28^th.  He stated that interest rates are “just below” a range of estimates of the so-called neutral level.

Many are economists questioned his performance at the December 19^th FOMC meeting and presser.  The Fed’s dot plots were lowered from 3 hikes to 2, but Powell was not cautious enough and his auto-pilot comment on Quantitative Tightening (QT) was considered reckless by some.

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