Federal Reserve Chair Makes Historic Decision

Rates Held but Dissents Rise 

This week held the conclusion of the Fed’s 2-day FOMC meeting and press conference. As expected, they held the Fed Funds rate steady. As we have discussed in past posts, dissents among the Fed voting members were rare until very recently. This meeting had four member’s dissent. Three members disapproved of the easing bias language contained within the FOMC statement, and one wanted to see a 25-bps cut. This was the most dissents since 1992. 

Powell Stays on as Governor 

What happened after the meeting during the press conference was the bombshell. Fed Chairman Powell, for whom this was his final FOMC meeting as Fed Chairman, announced that he would not be leaving his position as a Fed governor. The seven Fed governors are appointed by the president for a term of 14 years. Most governors do not complete a full 14-year term, and many come in during the middle of the term and serve the remainder. From among the governors, the president appoints the chair and vice chair of the Board of Governors, who serve 4-year terms. 

Making Fed History: Rare Post-Chair Roles 

The Federal Reserve System was created in 1913 with the enactment of the Federal Reserve Act. Since that time, only two chairs have remained in their governor position after the conclusion of their chairmanship for any meaningful length of time. The first example was Charles Hamlin, the very first Fed chairman, in 1916. The next example was Marriner Eccles, for whom the Fed building in DC is named, in 1948. He only stayed at the request of President Truman. 

Chairman Powell stated that he wanted to restore independence and the historical tradition of the Fed. This decision does not line up with the historical precedent that we have outlined. This may make it a bit awkward for incoming Fed Chair Kevin Warsh to sit across from his predecessor at the meetings.   

Inflation Jumps on Oil 

Personal Consumption Expenditures (PCE), the Fed’s favorite inflation measure, was released for March. Headline inflation showed a rise of 0.7%, which is very high due to the Iran conflict, but in line with market expectations. Yearly PCE rose from 2.8% to 3.5%. Also contributing to this was a 0% replacement from the year before. 

Stable, New Focus Ahead with Core PCE Report 

Core PCE rose from 3% to 3.2% annually, also in part due to a 0.1% replacement from last year. Markets took this news in stride, and we didn’t see much movement in rates. New Fed Chair Warsh has stated that he will pay less attention to Core PCE and more attention to the Dallas Fed’s Trimmed Mean Inflation figures. These figures remove a portion of the top and bottom price changes, stripping out some of the most volatile swings and providing a more stable reading. That inflation reading is about 2.4% versus 3.2% for Core PCE. Spending and incomes were very strong in this report, though about 40% of the spending increase was due to higher oil prices. 

Looking Ahead: Next Week Brings Jobs Week 

Tuesday, March 5: JOLTS, New Home Sales 

Wednesday, March 6: ADP Employment Report 

Thursday, March 7: Challenger Job Cuts, Jobless Claims 

Friday, March 8: BLS Jobs report