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• The market seemed surprised by the Fed decision and especially the commentary that the Fed would not be cutting rates in March. This is no surprise to readers here and it looks abundantly clear that the earliest cut is likely to come in May although June is still the most probable outcome in my view.
• Powell took the March cut off the table which actually seemed like a strange move in my view. There was no need to pigeonhole themselves on this. There’s still an outside chance that the labor market deteriorates more than expected in the coming months and that would put the March cut back on the table.
• Speaking of employment – I actually liked the way Powell communicated his focus on the labor market and the potential that labor market weakness could force them to cut sooner than they’d like.
• Powell was very clear that this isn’t a “soft landing” just yet. Again, I like the way he’s setting the tone here. He’s not ready to declare victory.
• It was a bit odd that Powell said rents will likely put more downward pressure on inflation, but that the Fed is still in wait-and-see mode on lower inflation. This is part of the problem with being so data-dependent. I think Powell wants to cut or at least knows that cutting could be wise at this juncture, but because they’re so data dependent they can’t jump the gun.
• All of this has increased the likelihood of a hard landing and the scenario where the Fed has overtightened and then remained tighter than they should have.
• As for asset classes – there’s good news and bad news here. The good news is higher for longer means you can lock in those TBills for a bit longer and essentially front-run the Fed. The bad news is that if this increases the odds of a hard landing then the risks to stocks and credit-sensitive instruments have increased in the near term.

You can watch the full interview here.

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