Increased Risks to Both Sides of the Dual Mandate

Overall, the Chair’s press conference conveyed a message that the Committee believes that, “the current stance of monetary policy leaves them well positioned to respond in a timely way to potential economic developments.”⁴ Powell described the impact of the Administration’s policy announcements since the last FOMC meeting as, “still evolving…and their effects on the economy…highly uncertain.”⁵ If the Committee were to, “find [itself] in the challenging scenario in which [their] dual-mandate goals were in tension…[it] would consider how far the economy is from each goal, and the potentially different time horizons over which those respective gaps would be anticipated to close.”⁶ With that said, the Chair went on to repeatedly emphasize that, “We [the FOMC] don’t think we need to be in a hurry. We think we can be patient.”⁷ When pressed on the impact of being patient on their next policy decision in June, Powell cited a track of moving “quickly when that’s appropriate, but…right now the appropriate thing to do is to wait and see.”⁸

Markets have been volatile since the March FOMC meeting, especially in early April. Federal Funds Futures at one point implied 25-basis-point (bp) cuts at both the June and July FOMC meetings, which we viewed as overly aggressive. Yields on United States Treasuries were little changed following today’s FOMC statement and the Chair’s press conference, while equity markets trimmed earlier gains. The futures-implied number of further rate cuts over the next twelve months remained at four 25-bp cuts – a bit more aggressive than our view that two or three ¼% cuts appear most likely.

What does this mean for portfolios we manage?

While the outcome of today’s meeting was widely anticipated, we took Chair Powell’s comments throughout his press conference as consistent with our own view that the Committee remains attentive to risks on both sides of their mandate. While uncertainty has undoubtably remained elevated, we view current rates as not too far off fair value and are therefore neutral duration across the portfolios we manage.

¹ Federal Reserve

² Federal Reserve

³ Federal Reserve

⁴ ibid

⁵ ibid

⁶ ibid

⁷ ibid

⁸ ibid

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