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The Federal Reserve Had a Big Week. Here Are 4 Things We Learned

Some weeks advance the understanding of Federal Reserve policy incrementally, and others by leaps and bounds. The past few days belong to the latter category.

For those still piecing together all the speeches, releases and presidential criticism, here’s a rundown of the major milestones:

1. Dove Cry?

The most market-moving comment of the week was Chairman Jerome Powell saying interest rates “remain just below the broad range of estimates of the level that would be neutral for the economy.” On one hand, it just describes the dot plot of Fed rate projections for the longer-run rate that neither stokes nor slows growth.

On the other, it was a rhetorical softening of his Oct. 3 remark that “we’re a long way from neutral at this point.” Powell knows how much his words matter, and investors took this as a dovish signal and walked back 2019 rate-hike estimates.

Economists were less excited, with many viewing the new language as an attempt to correct any misunderstanding of his October remark.

2. Clarida Concerns

Richard Clarida said in his second speech as Fed vice chairman that University of Michigan consumer inflation expectations for the next five to 10 years are “within — but I believe at the lower end of — the range consistent with price stability.” He also noted that a market-based indicator suggests the Fed’s preferred inflation gauge is running a little below 2 percent. Those assessments amounted to a slight downgrade from his descriptions in an October speech.

“It shows somewhat more concern about inflation expectations than his Oct. 25 speech,” Omair Sharif wrote in a report. Clarida’s speech wasn’t especially dovish overall, but if Fed inflation concerns are on the rise, it’s worth monitoring.

Also noteworthy: there was a word missing from his speech. At the tail end of his Nov. 27 address in New York, Clarida said he supported “gradual policy normalization.’’ That was a little different formulation than he used in his maiden Fed speech a month earlier, when he twice said that “some further gradual adjustment’’ in rates would likely be appropriate.

3. No ‘Further’

Powell’s Fed is all about flexibility. To that end, the latest meeting minutes show they’re considering a key tweak to the policy statement. In line for change was language referring to committee expectations for “further gradual increases,” the minutes said. Cutting the word “further” would signal that multiple quarterly rate hikes are no longer a given, leaving the Fed more leeway to go longer between hikes or even take an extended pause.

4. President on Powell

President Donald Trump grumbled anew about Powell’s tenure. “I’m not even a little bit happy with my selection of Jay,” he told the Washington Post in his latest broadside aimed at monetary policy makers and rising interest rates. “They’re making a mistake, because I have a gut and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

Complaints aside, it’s unclear how Trump can control his confirmed nominees.

Overall Take

In total, the past week’s developments swung market expectations. Futures markets show investors have pulled back 2019 rate hike bets in recent weeks to just one. Stocks rebounded over the course of the past week and the benchmark 10-year Treasury yield came back down around 3 percent. That’s an interesting setup for another busy week of Fed policy commentary that’s coming up. Here are some of the key events to keep an eye on.

Dec. 3 Bloomberg Television interviews Clarida at 6:30 a.m. New York time; Governor Randal Quarles interviewed in New York at 8 a.m.; Governor Lael Brainard speaks in New York at 10:30 a.m.

Dec. 4 New York Fed President John Williams speaks at 10 a.m.
Dec. 5 Powell testifies in Washington before the Joint Economic Committee, testimony released at 8:15 a.m.
Dec. 6 Williams speaks at 6:30 p.m.
Dec. 7 Governor Lael Brainard speaks at the Peterson Institute for International Economics in Washington at noon