Special Fed Coverage: Powell Press Conference
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Your Money Briefing. Money and Market Stories from the Wall Street Journal.
Welcome to this Federal Reserve special edition of Your Money Briefing. I'm J.R. Whalen in New York. On Wednesday, the Federal Reserve announced it will raise short-term interest rates a quarter percentage point to between 1.5% and 1.75% and said four interest rate hikes this year remain a possibility.
What did the Fed announce about the new interest rate range?
In its first news conference, Federal Reserve Chairman Jay Powell was asked why the Federal Reserve wasn't more definitive in predicting four interest rate hikes this year.
I think like any set of forecasts, those forecasts will change over time, and they'll change depending on the way the outlook for the economy changes. You know, it could be that if the economy is a little bit stronger or a little bit weaker, then the path could be a little less gradual or a little more gradual.
Bill Stone is chief investment officer of Stone Investment Partners, and he joins us to discuss. So, Bill, is this Jay Powell sort of hedging his bets, or do you think that the Fed is really expecting maybe not upward to the moon trajectory we've seen from the economy so far?
I think he's trying to keep his options open. I also think he was trying to de-emphasize a little bit in some of the moves that the Fed made around their so-called dot plot projections. So while the projections for 2018 stayed on the median unchanged, they actually moved up on the whole. So the average projection moved up pretty significantly. Also, the median number of hikes for 2018, I'm sorry, for 2019 and 2020 moved up. So I think he was trying to also deal with the fact that people kind of zone in on those and talk that back a little bit. Because I think he even said later, hey, you know, going out that far, you have much less confidence in what we'll end up doing.
Coming up next, more from Fed Chairman Jay Powell and how should you play the market as the Federal Reserve weighs three or four interest rate hikes each of the next several years. This is your Money Briefing from The Wall Street Journal. Welcome back, everybody. And the inflation rate has been sort of a moving target for the Fed.
Why didn't Chairman Powell definitively predict four rate hikes this year?
They have been eyeing 2% inflation for a long time. And Jay Powell came out today and said that the Fed expects inflation to surpass 2% next year and in 2020. And he was asked about wage growth and the relatively slow pace of wage growth in this country and whether it is a concern to the Fed. And he says that we'll have to watch the unemployment rate and the inflation rate in order to properly gauge wages.
There's no sense in the data that we're on the cusp of an acceleration of inflation. We have seen moderate increases in wages and price inflation recently. And we seem to be seeing more of that. We'll be alert to that. I guess the idea-the theory would be that if you get below the sustainable rate of unemployment for a sustained period, you would see an acceleration of inflation. So we would know that then. And we're very alert to it, but it's not something we observe at the present.
So, Bill, so far we have seen unemployment at near record lows and we have seen inflation really held in check for a while. So I guess this means that wages are a concern to the Fed, but it's not sending off any alarms.
Yeah, I think that's exactly where you're trying to go, because I think part of also you touched on it because the Fed actually lowered its expectations. In other words, expected unemployment to be even lower than previously at the end of 2019. So You know, I think he wanted to deal with that part. And you're right. We really haven't seen the kind of wage growth that you've seen in the past at this kind of unemployment rate. So he did go on. You know, he really talked about it there. It doesn't expect some sort of spike in inflation that you should fear. Again, I think trying to walk back and make sure that people don't think there's going to be some anything other than just a gradual increase in the Fed funds rate.
When the Fed said on Wednesday that it was projecting three or possibly four interest rate hikes this year, the market spiked because it was not a definitive four.
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