[Economics] The Spotlight’s on Powell as Fed-Easing Dream Fades

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A series of disappointingly high inflation readings means the three rate cuts that formed the median projection as of March seem woefully out-of-date now. As of Tuesday, interest-rate derivatives reflected investor expectations for just one reduction, at the tail-end of the year. At the same time, Chair Jerome Powell and at least some of his colleagues on the rate-setting Federal Open Market Committee likely want to preserve the option for multiple cuts. Removing that option entirely from the official forecasts could send longer-term borrowing costs climbing — potentially imposing more economic restraint than policymakers want. With no new forecasts, Powell has maximum flexibility to deliver the message he wants in the press conference scheduled for 2:30 p.m. in Washington, half an hour after the FOMC is widely expected to announce no change in rates for a sixth straight meeting. (As noted in yesterday’s newsletter, the main news at 2 p.m. is likely to be about the Fed’s bond portfolio.) The US team at Bloomberg Economics says: “We expect Powell to make a hawkish pivot at the April 30-May 1 meeting. At the minimum, he’ll likely indicate the median FOMC participant now expects ‘less’ cuts this year. In a more hawkish direction, he could hint at a chance of no cuts — or even suggest a hike might be on the table, though not the current baseline.” Financial markets have already shown signs of concern about just how hawkish a shift Powell may make. Stocks on Tuesday closed out their worst month since the big late-2023 rally got going in anticipation of an easier Fed stance coming this year. Two-year Treasury yields also hit their highs for 2024 so far. The overarching theme from Powell is bound to be “wait-and-see,” says Michael Gapen, head of US economics at Bank of America. “The answer to stickier inflation is you just stay where you are for longer.” The Best of Bloomberg Economics Unionized workers in the US saw record pay raises, while nonunion workers’ income barely beat inflation over the past 12 months. Mexico’s economy posted small growth in the first quarter compared to the previous three-month period, as policymakers consider whether to deliver an additional interest rate cut at next week’s meeting. South Korea’s export growth accelerated in a sign the economy can sustain momentum after a faster-than-expected expansion last quarter. New Zealand’s jobless rate rose to a three-year high in the first quarter and employment unexpectedly fell as high interest rates cooled demand. On the southern coastline of Greece’s capital, a long-awaited plan to transform the city’s former airport into the largest smart city in Europe is finally gaining momentum. Tenants in New York City’s 1 million rent-stabilized apartments are on track to face the third year in a row of rent increases. Need-to-Know Research Germany’s return to economic growth last quarter isn’t just a “flash-in-the-pan,” Andreas Rees, chief German economist at UniCredit Bank in Frankfurt, wrote in a note after data showed a 0.2% quarterly advance in GDP, the first increase in a year.

https://www.bloomberg.com/news/newsletters/2024-05-01/world-economy-latest-fed-interest-rate-decision?srnd=economics-v2