The Federal Reserve Bank of the US held the fed funds rate steady at Wednesday’s meeting. The fed funds rate remain at 3.5-3.75%. This was the expectation in the market and as a result, the reaction to the news was relatively muted.

Chairman Powell’s commentary focused on two distinct but closely intertwined topics (1) the need for the Fed (and all Central Banks) to maintain independence and (2) the rationale for the Fed holding the line on rates yet again.

Independence Top of Mind (and Presser)

The first question in the press conference was why Powell attended the Supreme Court’s hearings concerning the case of Fed Governor Lisa Cook (and President Trump’s attempt to fire her).

“That case is perhaps the most important legal case in the Fed’s 113-year history,” Powell said. “And as I thought about it, I thought it might be hard to explain why I didn’t attend.”

As the presser continued, reporters attempted to ask about the criminal charges that were levied against Fed Chair Powell himself and his subsequent video informing the public of the charges and his thoughts on Fed Independence. Powell was quick to divert such questions, saying “I have nothing for you on that today” and referring them back to his statement from earlier this month.

Pressing Pause

As always, the opening line of the prepared comments focused on the dual mandate of maximum employment and stable prices. In his commentary, Powell expressed the Fed’s views that the upside risks to inflation and the downside risks to employment had both abated since the last meeting, resulting in the conclusion that rates should remain where they are. Powell summarized it as follows:

“Having lowered our policy rate by 75 basis points over the course of our previous three meetings we see the current stance of monetary policy as appropriate to promote progress toward both our maximum employment and 2% inflation goals“

The vote was 10-2 (2 dissenters being the two recent appointments of President Trump who has openly lobbied for lower rates) to hold rates at their current level.

Powell was also quick to discourage market watchers from trying to decipher when another cut might be coming as he said “We’re not trying to articulate a test for when to next cut…What we’re saying is we’re well positioned,”

Many believe that unless the labor market weakens considerably from here that rates are likely to stay put – at least thru the end of Powell’s term as Chair ends in May.

What Does this Mean?

Today’s comments brought an important reminder of the essential element of Central Bank independence. For any country – US or otherwise – having a governing body in charge of monetary policy that is independent of the election cycle is paramount. Any other approach would allow one party or the other to potentially manipulate monetary policy to influence voters. The functioning of an economy and its monetary system is far too essential to allow for partisan interference on either side. It’s challenging enough for a country to endure whipsaw actions in fiscal policy (see the latest efforts to shutdown the government). Powell indicated its his hope (and expectation) that the Federal Reserve maintains independent now and in the future. Near the end of his comments, he said “we haven’t lost it, I don’t believe we will”

As for holding rates steady, it’s actually a constructive sign. Inflation and labor markets are steady enough as they are, without any further economic stimulus being needed. That is encouraging for the economy and the companies that operate within it. However, the likely glide path for rates remains downward over time (likely to ramp up with the introduction of a new Fed Chair). As a result, market participants continue to believe the Fed Put on the stock market remains in tact (ie: falling rates are supportive of equity prices)

Onward we go,