If Powell wants a rate cut, he will have the votes
Federal Reserve Chair Jerome Powell’s testimony before Congress this week made it seem a rate cut at the end of the month is a done deal.
Fed chairs usually get what they want. And, despite a split in thought on the panel about where rates are going, as evidenced by the latest Summary of Economic projections, Powell will have enough votes to push through a rate cut, even if there is some dissension.
Powell and the other Board members — Richard Clarida, Randal Quarles, Lael Brainard, and Michelle Bowman — are likely to vote together. Based on recent comments, it is clear they will vote as a bloc.
Speaking in Pennsylvania on Thursday evening, Brainard said that if downside risks materialize, they “could weigh on economic activity. Taking into account the downside risks at a time when inflation is on the soft side would argue for softening the expected path of monetary policy according to basic principles of risk management. Of course, my judgment about the actual path of policy will continue to be influenced by the evolution of the data and the risks.”
Federal Reserve Bank of New York President John C. Williams spoke recently of “a more nuanced economic picture” as “signs point to slowing growth,” suggesting he’s willing to lower rates.
Federal Reserve Bank of St. Louis President James Bullard supported lowering rates at the most recent FOMC meeting, when rates were held, so he’d also surely back a cut. Recent comments put him on board for a 25 basis point move.
Federal Reserve Bank of Chicago President Charles Evans also is likely to support a lowering of rate, based on the below-target inflation rate, and Friday said, "a couple of" downward moves could push inflation above the Fed's 2% target in the next two years, according to reports.
The two voters who may object are Federal Reserve Bank of Kansas City President Esther George — who has stated that low rates could result in asset price bubbles and excessive risks, which caused the two most recent recessions — and Federal Reserve Bank of Boston President Eric Rosengren, who in May, said, “I see no clarion call to alter current policy in the near term.”
Even if those two did not support a cut, Powell would have eight votes, enough for passage.
While most economists expect a 25 basis point cut, Morgan Stanley Research sees the Fed slashing 50 basis points.
“A strong policy response is necessary to guard against risks of a further, sharper loss of economic momentum,” its economist wrote in a note. “Weak incoming data, lingering trade tensions, and preventing both financial conditions from tightening and a non-linear adverse impact on growth are key reasons for a front-loaded adjustment.”
The producer price index rose 0.1% in June, in line with expectations, while the core rose 0.3%, more than the 0.2% predicted by economists polled by IFR Markets.
On a year-over-year basis, PPI was up 1.7% and the core rose 2.3%, both a tick higher than expected, the Labor Department reported Friday.