Former Fed Chair William McChesney Martin was the longest serving Fed Chair, serving almost 19 years until January 1970. He is famous for his description of the Fed’s role as being one akin to “taking away the punchbowl just as the party gets going”.
The Federal Reserve’s Federal Open Markets Committee (FOMC) decision overnight to reduce the policy (federal funds) rate by a further 25 basis points (bp) to a target of 4.25-4.50 per cent is not quite consistent with that analogy, but Fed Chair Powell’s subsequent press conference commentary is a nod in that direction.
Certainly, that commentary and the newly issued “dot plot” that accompanied the decision suggested that the punchbowl’s potency might need to be diluted in 2025 – at least compared with expectations prevailing prior to the FOMC meeting.
In his press conference, Fed Chair Powell described the decision to cut the policy rate as a “closer call”. He added that the Fed was in a “new phase” of caution after having eased reasonably forcefully. In a hawkish intonation, he added (McChesney Martin style) that going forward “…we are in a place where the risks really are balanced, and we need to see progress on inflation…” (my emphasis).
Read Stephen’s ‘On the other hand’ here
