Jerome Powell gave a speech and Q&A at the Society for Advancing Business Editing and Writing (SABEW) conference for business journalists near Washington D.C. today. This was a different type of appearance for Powell because it wasn’t in the usual places like the Economic Club of New York or the Council on Foreign Relations, it was in a cramped room with an exit door behind him and one low-resolution camera recording it. I appreciate Powell for doing this, I can’t remember his predecessors appearing at conferences this small.

The main point of Powell’s speech and Q&A was that the Fed is not yet going to hint about lowering rates. The Fed doesn’t want to open the gates to the bond market pricing in a recession and easing financial conditions prematurely given that inflation is still an unknown. In his speech, he said,

The new Administration is in the process of implementing substantial policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. Our monetary policy stance is well positioned to deal with the risks and uncertainties we face as we gain a better understanding of the policy changes and their likely effects on the economy.

and,

Our obligation is to keep longer-term inflation expectations well anchored and to make certain that a one-time increase in the price level does not become an ongoing inflation problem.

He elaborated on this with an answer to a question about how severe the current period seems [video],

Stacey Vanek Smith (Bloomberg): Given all of the change happening and the fact that we are in a period where things have not settled in yet, and that the Federal Reserve and you as chair are very projection-data driven, policy driven, how do you handle a moment like now? Can you tweak your plans and projections? Do you have to reset them?

Jerome Powell: What we’ve had in the last few months from the staff has been a placeholder. They wouldn’t call it a forecast because it’s so uncertain, they call it a placeholder. That’s kind of how we’ve been thinking about it. So, it’s a good time to take a step back and let things clarify. That’s why it’s just too soon to say what the appropriate monetary policy response will be to these new policies. It is just too soon to say. We can’t say with any confidence today. So, that’s what we’re doing, we’ve taken a step back and we’re watching to see what the policies turn out to be and the ways in which they will affect the economy. Then we’ll be able to act. Fortunately, our policy stance is in a good place for us to do that. We’re probably moderately restrictive, let’s say, so it’s not really tight policy, which is appropriate since inflation is a bit above target, so we think we’re well positioned to address whatever may come and in the meantime, I’d say we’re waiting for greater clarity before we consider adjustments.

After the strong payroll report this morning, I thought Powell would be quick to use it to stall. In today’s LDEI update, I wrote about the jobs report, “Nobody (including me) thinks today’s strength will last, but it does buy the Fed more time to ‘get comfortable with inflation’ as is becoming a new catchphrase of the Fed.” Powell leaned on the strong jobs report to justify the Fed’s continued pause [video],

James Nelson (Milwaukee Journal Sentinel): I’m from Milwaukee and I’ve been talking to business leaders and executives and consumers in our community and our region for the last few weeks, mostly before this week’s news. Chairman, they are troubled and they are nervous. One business owner told me, if there’s a hint of a recession, we’re cooked, and he asked me to share that with you. What’s your response?

Jerome Powell: So, I guess I would say let’s start with the fact that the incoming data right through to this morning’s employment report, which admittedly is from roughly a month ago, the week of March 12th they took the data in. It still shows a solid economy. Unemployment is still low. I understand the uncertainty that’s weighing on people. You ask about a recession. We don’t actually…we don’t make a probability forecast about how likely it is for there to be a recession, but many outside forecasters do. And many of them have raised the likelihood, albeit from very low levels. It’s not something that anybody now is forecasting, although people are starting to. So, there’s not much more I can say about that. I realize that the uncertainty is high and what we’ve learned is that the tariffs are higher than anticipated, higher than what almost all forecasters predicted. We still don’t know where that comes to rest though and we’re just going to have to see that through.

It would be easy to conclude from this that there is some length of time to wait for the Fed to cut rates, but their pause is only as long as the data holds up. Nobody knows when the next shoe will drop. Canada’s jobs report today was shockingly low from tariffs. Data in the US can’t be too far behind. In other words, the Fed is on the data’s schedule, not their own.

Whether “hard versus soft data” is the excuse as it was weeks ago or “waiting for policy to be certain” is the excuse as it was today, the Fed is grasping for anything they can find to buy time, hoping the data will hold up long enough to see the shape of what the inflationary impact from tariffs will be before they have to cut rates. I doubt they will be afforded that luxury with how quickly things are developing. Global stocks are coming down quickly, credit spreads are widening, commodities are crashing, and inflation expectations shrinking. 2-year inflation expectations were down 12.5 basis points today! This is the realm where things blow up. The Fed and developed-economy global central banks may be forced into cutting rates from credit issues that pop up even before negative economic data gives the “all clear.”