WHAT THE FED DECIDED
The FOMC has taken a significantly more hawkish stance. Three members dissented against maintaining the accommodative bias, and Chairman Powell acknowledged that the Committee is moving towards a more neutral stance; a change could materialize as early as the June meeting.
HOW THE U.S. ECONOMY IS DOING
Domestic demand continues to proceed strongly, confirming the resilience of the economy. However, uncertainty about the duration of the Gulf war and its economic repercussions adds to a precarious labor market balance of the “neither hiring nor firing” type and persistently high inflation. The Fed remains “in a good position” and does not see the need to rush decisions.
POWELL’S WORDS
Powell stated that he will not resign from the Board until the Department of Justice investigation reaches a transparent conclusion, reigniting concerns about the ongoing political attacks on the Fed.
THE SCENARIO WITH WARSH
The hawkish shift will complicate the start of Kevin Warsh’s term (approved today by the Senate Banking Committee). Our baseline scenario continues to foresee a cut in December (based on a slightly less positive view of the economy), but the probability of no cuts has increased significantly.
