“Look at the state of the economy,” he said. “The labor work is solid, inflation is low. We can afford to be patient as things unfold. There’s no real cost to our waiting at this point.”
Other economists, however, note that a “wait and see” approach carries its own risks.
“Central banks that react rather than preempt data tend to be late in changing policy,” said Paul Donovan, chief economist at UBS Global Wealth Management. “Economic data is also increasingly less reliable, making data dependency more dangerous.”
“It’s still a healthy economy,” Powell said, “albeit one that is shrouded in some very downbeat sentiment on the part of people and businesses.”
“We see the shipping data, we see all that,” Powell said.
Powell added the Fed doesn’t need to hurry because the Federal funds rate, its traditional monetary policy weapon, remains “moderately restrictive.” In other words, the central bank could lower rates quickly and dramatically if necessary, giving it plenty of ammunition if a downturn materializes.
“The data may move quickly or slowly,” he said, “but we do think we’re in a good position where we are to let things evolve and become clearer.”
When both variables surge in tandem, it creates a “complex and challenging judgment,” Powell said. He stressed that such a scenario hasn’t played out yet.
“The assessment is, you wait,” the Fed chair said.
For now, however, the Fed feels pulled in two directions, said Chris Zaccarelli, chief investment officer at Northlight Asset Management in Charlotte.
“Because of this, the Fed is going to have to wait for unemployment to spike before they resume cutting rates,” he wrote in a note Wednesday, “and by that point it might be too late.”
This also means the central bank will be trying to play catch-up, said Matthew Pallai, chief investment officer at Nomura Capital Management.
“Perhaps fiscal policy is better suited for this constellation of risks than monetary policy,” Pallai wrote in a Wednesday note. “Managing interest rates may be too blunt a tool to navigate between two obstacles.”
