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For Fed's Powell, you may need to explain a hole with markets and drum



By Howard Schneider and Ann Saphir

WASHINGTON / SAN FRANCISCO – (Reuters) – Bond investors expect an aggressive set of interest rate cuts in the US this year, and a voluptuous president fires for the "old days" when his predecessors bully central bankers to get their way.

If Federal Reserve President Jerome Powell had a complicated task last year to call an early halt to further Fed rate hikes, his mission at a Wednesday's press conference could be even more difficult: Pull the needle between rising expectations that lower rates will soon Comes, and financial data that looks reasonably healthy with prices wherever they are.

Failing to pull it out could trigger the same kind of volatility and tightening of the financial conditions proved in December when Powell's press conference's comments were interpreted as too hawkish and partly responsible for an 8% reduction in S & P 500 over the next few days.

In the extreme, this kind of volatility can feel in the real economy and make Feds jobs in the coming weeks even more complicated.

"Powell wants to make a lot of tape dancing," wrote bank of America Merrill Lynch economists on Friday explaining how the Fed should account for expected slower US growth, weak inflation and tragic risks without it looks like a serious downturn is in the offen.

"This is a Fed that wants to make sure the recovery continues," they said. "The goal will be to talk about the need to ease the policy, but emphasize that a recession is not around the corner."

The Fed begins its two-day political meeting on Tuesday and issues a new statement and financial projection of 2 pm (1800 GMT) on Wednesday. Powell's press conference is expected to start on Wednesday at 2:30 (1830 GMT)

The central bank is expected to leave the benchmark for the daily exchange rate unchanged at the current range of between 2.25% and 2.5%. The federal fund price has been at this level since December following a three-year monetary tightening cycle that started slowly but ended with about quarterly rate hikes during 2017 and 2018.

A "DARKENED" OUTLOOK?

The mood has clearly shifted since the Fed last met at the beginning of May, partly due to trade policy choices made by President Donald Trump, and which the president has demanded set off with less monetary policy.

But it is unclear how much. A Federal Reserve Regional Bank President has referred to the prospects as "darker" and another has called for lower rates "soon". Powell in his recent public comments dropped the use of the word "patient" in reference to the Fed's position when it comes to deciding on the next installment move.

It suggested to many analysts that the word will disappear from the policy statement as well. In May, the 279-word Miss Fed said "will be patient as it determines which future adjustments to federal funding may be appropriate."

But lack of patience does not mean that the central bank is on a hair trigger. Powell's focus will focus on how he describes Fed's sensitivity to forthcoming data, how seriously it sees the risk of a growing trade war, and whether it still sees weak inflation as probably "transient" as it described it in May. 19659015] A LITTLE FEDSPLAINING & # 39;

Despite his misconduct in December, Powell has generally been good grades by Wall Street investors for its ability to communicate politics.

His immediate predecessors had their own faults.

Former President Ben Bernanke unleashed weeks of global volatility on the world market with its 2013 comments on the Fed's plan to reduce its bond purchases. And former President Janet Yellen in 2015 had to navigate the difficulties with the first interest rate hike since the financial crisis 2007-2009.

But this week, Powell may have a pronounced information gap to fill out. In March, 11 out of 17 politicians felt that rates by the end of the year would be unchanged from today, and the other six would probably be slightly higher.

The expected development of the economy has not changed so much since then. Although Trump's trade policies have been difficult to predict, Fed officials say the economic impact might as well face upward if, for example, a forthcoming meeting of the 20 nations group ends with some progress in US-China trade negotiations.

At this time, as Goldman Sachs economists wrote on the weekend, the Fed's "hurdle" to reduce rates "is likely to be higher than generally assumed" with the economy and markets either healthier or more fitting to Fed policy than was the case in the 1990s, as the Fed's preventive "insurance rate" is being lowered to encourage continued economic growth.

If Fed officials do not collectively push their rates down as markets expect and the White House demands, it will be up to Powell to explain why.

(Reporting by Howard Schneider; editing by Dan Burns and Andrea Ricci)


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