Yes, no, maybe: The three key messages Powell delivered to investors

Is the Fed still targeting an inflation print of 2 percent? - Yes

Powell minced no words in his post-policy presser.

“We are committed to restoring price stability, and all of the evidence says that the public has confidence that we will do so—that we will bring inflation down to 2 percent over time. It is important that we sustain that confidence with our actions as well as our words,” he said.

Recession, unemployment, collapsing banks, global tremors – none of these will deter the Fed from pursuing its goal.

“…if we need to raise rates higher, we will,” the Fed chair asserted in response to another question, putting any lingering doubts to rest.

If Powell was a character in the Mahabharata, he surely would have been Arjun – laser-focused on hitting his target.

However, displaying a streak of truthfulness, which would have made Yudhishthir shed a tear, Powell acknowledged that the central bank’s actions affect communities, families, and businesses across the country.

Nevertheless, he characterised price rise as the bigger evil, saying “high inflation imposes significant hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation”.

Consumer inflation in the US remains way above the Fed’s goal.

Retail inflation in February came in at 6 percent on an annual basis, while the core inflation print was at an uncomfortably high level of 5.5 percent. Despite price pressures cooling off since the middle of 2022, there’s still a long way to go.

Will the Fed cut rates this year? – No

Despite faint hopes of the ongoing banking sector upheaval forcing the Fed to consider its unprecedented monetary tightening, Powell was ruthless in nipping any such thoughts in the bud.

“Rate cuts are not in our base case,” he said in a rare departure from the Fed’s restrained phraseology.

Powell, in fact, underscored that the current banking sector turmoil is likely to result in tighter credit conditions for households and businesses, and hence is the “equivalent of a rate hike or perhaps more than that.”

Which means apart from Fed’s nine consecutive rate increases since 2022, Silicon Valley Bank, Signature Bank et al have delivered a rate hike of their own.

Congratulations to their managements then.

In its Summary of Economic Projections (SEP) published after the end of the two-day policy meeting, FOMC members said they expect relatively slow growth, a gradual rebalancing of supply and demand in the labor market, and moderation in inflation.

But no rate cuts in 2023.

The implication for investors is clear – expect rates to stay higher for longer.

Which means no easy FII inflows for emerging markets like India and the resultant pressure on domestic currency and current account deficits.

Over to the RBI now.

Will the US economy have a soft landing? - Maybe

Dousing inflation without decimating growth is the holy grail of policy wonks. Particularly the current crop of Fed officials, who have been asked this question incessantly over the past 12 months or so.

Powell returned to the cryptic mode that is synonymous with Fed chiefs while answering this question.

“You know, it’s too early to say, really, whether these events (of the past two weeks) have had much of an effect. It’s hard for me to see how they would have helped the possibility, but I guess I would just say it’s too early to say whether there really have been changes in that,” he remarked.

Powell added that he still sees a pathway to a soft landing, but did not elaborate.

At his previous policy announcement on February 1, 2023, the Fed chair was more forthcoming on his expectations.

"I continue to think there’s a path to getting inflation back to 2% without a significant economic decline or significant increase in unemployment," Powell had said.

There were only three instances during Powell’s press conference on Wednesday when the room full of journalists erupted in laughter.

First was when Powell quipped that the only reason why he mentioned the word “disinflation” 9 or 10 times during his February press conference was because he was asked the question 12 times.

The second was when he described the interval between the February and March policy meetings as “quite an interesting seven weeks”.

And the third bout of laughter was elicited in response to the “soft-landing” query.

It is refreshing to see people retain their sense of humor during trying times.

Whether investors see any reason to smile is another matter.