What Will Powell Say?

Tomorrow afternoon, the FOMC is widely expected to increase the federal funds rate by 75bps to a range of 3.75%-4.00%. There is much less certainty about what Fed Chair Jerome Powell will say at his press conference at 2:30 p.m. after the meeting. The bulls, including yours truly, are hoping to hear that after another rate hike of 75bps next month to 4.50%-4.75%, the Fed is likely to pause rate-hiking to assess the economic impact of raising the federal funds rate by a whopping 450bps during the 10 months since March of this year. That’s probably asking for more than Powell is likely to deliver.

More likely, Powell will say that inflation remains persistent. It seems to be moderating in the goods sector, though food inflation remains troublesome as does energy inflation. If the Russians terminate their agreement with Ukraine over grain shipments, that could push global grain prices higher. The drought in the US could continue to put upward pressure on US food prices. A shortage of diesel fuel in the US could boost its price significantly, raising the costs of transporting food and lots of other goods. Powell may not get that far down into the weeds, but he certainly will mention that the inflation pandemic has spread more broadly into services prices, not just rents.