Powell presses pause

You all called it: The Federal Reserve decided to keep interest rates at its current target of between 4.25% and 4.5%.

Turns out our pesky old friend inflation hasn’t gotten the hint that the party is over, Powell explained (in a much more boring way) during his press conference.

The Fed will need to see “real progress on inflation” or “weakness in the labor market” before making more adjustments to the federal funds rate, Powell declared. Powell noted that core PCE is still at 2.8%, higher than the Fed’s 2% stated goals.

The good old days

Let’s rewind all the way back to the pandemic, when the Fed kept interest rates near zero. But when inflation began to skyrocket in response, the Fed was forced to aggressively hike rates—for 11 meetings in a row, in fact. Over the past year, the labor market began to show hints of slowing while inflation decelerated, laying the groundwork for Powell’s highly coveted soft landing. But President Trump threw a wrench in the Fed’s plan—not just because of his potentially inflationary policies, but also because he wants the Fed to listen to him and forgo its independence.

Looking forward: “With the data we have currently, the Fed would likely hold rates unchanged at their March 19 meeting. Solid income growth for most households over the past year has kept services inflation elevated,” explained Jeffrey Roach, chief economist for LPL Financial, in a note.

Powell remained positive on the economy in his comments today, arguing that the Fed is in no hurry to adjust policy given that the central bank has already lowered interest rates over the past few months. The market now foresees another pause at the Fed's next meeting in March, and a cut coming in June.

Powell vs Trump

It’s hard to think of two people with more starkly different personalities and public speaking styles than Trump and Powell. Ever the jokester, Powell remained remarkably reserved while fielding reporters' countless questions about Trump’s various policy measures and public comments about the Fed.

Powell did disclose that he and Trump have not spoken or had contact since the president said he would “demand” interest rates come down.

I guess those two aren’t working it out on a remix anytime soon.—LB