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December 1, 2018 | Spotlight on Powell’s Definition of “Just Below Neutral”

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Fed Chair Jerome Powell stated on Wednesday that interest rates are “just below neutral”. That’s quite a position.

Effective Fed Funds Rate

The Effective Fed Funds Rate is 2.2%. Neutral is 3.0%.

Lovey-Dovey Interpretation of Powell Speech Sends Stocks Flying

On Wednesday I commented Lovey-Dovey Interpretation of Powell Speech Sends Stocks Flying.

Here’s the exact statement from Powell under discussion.

Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth.

Debate Over “Just Below”

Powell has an out. The media focuses on “just below”.

Powell stated just below the “broad range of estimates”.

The lead chart from the WSJ “Daily Shot” shows the “median prediction” not the “broad range”.

Dot Plot

Compared to the median, the Fed needs just over three more hikes to get to neutral. Compared to the “broad” range. we are already there.

That was a carefully crafted statement by Powell.

Mike “Mish” Shedlock

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December 1st, 2018

Posted In: Mish Talk

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