Powell says Fed is ready to cut rates if inflation falls quickly

By Greg Robb

What we learned, and what we didn't, from the Fed chair's press conference

Federal Reserve Chair Jerome Powell was tight-lipped at his press conference Wednesday, having been stung previously by too much optimism.

Overall, Powell was "disciplined and vague" and "optimistic and cautious" during his press conference, a former top Fed staffer said.

"I think we learned very little and that was the intention," said Julia Coronado, a former Fed official and founder of research firm Macropolicy Perspectives, in an interview.

The softer-than-expected May CPI data had economists thinking that two interest-rate cuts this year were a slam dunk. They were taken aback when the Fed's new forecast showed only one cut this year.

Read more: How will the soft May CPI reading impact the Fed? By starting the clock on a potential September rate cut.

Pressed at his news conference to explain, Powell said that the May CPI data "was certainly a better inflation report than almost anybody expected," but he stressed the data was only for one month.

Coronado said Powell was showing that he has learned from bitter experience not to sound too optimistic about inflation.

Last December, Powell indicated a rate cut might come soon in the wake of soft inflation data, and financial markets quickly priced in almost seven cuts. It took months for the Fed to wean the markets back to more realistic expectations.

Here's what we learned from Powell's Q&A with reporters, and some of the questions he ducked:

If inflation falls quickly, the Fed is 'prepared to respond'

In his prepared remarks, Powell said "if the labor market wereto weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond." The language on inflation was new. In his comments at his last press conference in May, Powell had only mentioned cutting if there was weakness in the labor market.

Fed projections signal one cut; Powell fine-tunes the message

In his press conference, Powell said many Fed officials viewed one versus two rate cuts this year as a close call, and that they would be open to either, depending on the data. Powell said either was a "plausible" forecast.

Krishna Guha, vice chair of Evercore ISI, said Powell fined-tuned the Fed's message a bit.

"All told, we interpret the presser as fine-turning the message from 1 cut to a 1.5-cut message, with the data to resolve whether we get one or two" moves, Guha said.

What data is important to decide whether there is one or two hikes?

Here Powell refused to offer much help. Powell said the Fed wanted to see good inflation readings but wouldn't say how many. He said the Fed was also looking at a broad array of data, including the labor market and the forecast.

Did the Fed change their projections after this morning's CPI print?

Here Powell was evasive, said Derek Holt, head of capital markets economics at Scotiabank.

Powell said that when there is an important data point, Fed officials can update their forecasts - but most people don't.

"He left me with the impression that he was trying to say that the forecasts fully incorporated this morning's CPI. The way he answered it and his body language didn't convince me," Holt said.

"Where does all this leave us? Back to watching the data," he concluded.

-Greg Robb

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06-12-24 1811ET

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