Fed Chair Jerome Powell appeared in a question-and-answer session last Friday in Zürich, it was the last opportunity to get an update of the Fed’s thinking about the state of the economy and monetary policy.
Unfortunately, Mr. Powell was not generous with comments and restricted himself to positions and views already known. He reiterated his positive view about the economy outlook, repeating several times that: “The most likely outlook for the economy remains a favourable one, with moderate growth, a strong labour market and inflation moving back up close to our 2 percent goal”. On the other hand, he warned “there are significant risks such as slowing global growth, uncertainty around trade policy and persistently low inflation.” In addition, he explained that “growth has been mostly driven by consumer spending, which represent 70% of the economy, consumer has been strong, service sector has been strong. The manufacturing trade and business investment sides have been weaker and is now sideways to slightly down, but it is a smaller part of the economy.”
Finally, he reiterated that the Fed is not managing, nor giving its opinion about, trade policy but recalled that “Uncertainty around trade policy is causing some company to hold back on investment.” Really nothing new. Markets were hoping for more crispy news. They are going to have to wait one more week.
Overall, we believe that the comments are pointing towards a 25bps at the September FOMC meeting. The market already started to discount slowly a 50bps. According to the futures on Fed funds rate, there is only a 4% of such a move September 18th compared to 25% a week ago.
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