Analysis: Fed chair Powell offers opaque message to investors - and they like it

WASHINGTON - Federal Reserve Chair Jerome Powell has left everyone guessing about what the central bank will do next. And that's exactly what investors wanted.

The Fed met expectations Wednesday by trimming its benchmark interest rate by a quarter-point for the second time in a row.

Then the Fed chief parried questions from reporters seeking clues about whether more cuts are on the way. He made equivocal remarks that effectively painted a Rorschach inkblot onto which investors and other market watchers could project what they hoped to see.

"Powell held his cards close to his chest and would not commit to additional shifts in policy," Grant Thornton chief economist Diane Swonk wrote. "Powell dodged all questions regarding the course of rates going forward and where he sits on the spectrum of views on display within the [Federal Open Market Committee]. He underscored that the bulk of the committee is now moving on a meeting-by-meeting basis."

The result was a too-rare phenomenon for the embattled Powell: Stocks rallied after he spoke. They dipped first on snap judgments that Powell was signaling no further rate cuts this year but turned around as his ambiguity sank in and closed in the green. The Dow Jones industrial average gained 36 points, or .13 percent, on the day:

The Dow has closed in positive territory on just two of the other 12 days when Powell has held a news conference. The index shed 1.3 percent on the day of his last appearance, for example, after the Fed cut rates for the first time since the financial crisis. Powell trampled on that news in his back-and-forth with reporters by sending what investors interpreted as hawkish signals about where the central bank was headed.

Powell's approach was dictated in part by necessity. He presides over a Federal Open Market Committee as divided as any in years. The split was evident again in the vote, as three regional Fed presidents dissented - a first in Powell's tenure. (Two, Boston Fed President Eric Rosengren and Kansas City Fed President Esther George, wanted to leave rates untouched. The third, St. Louis Fed President James Bullard, wanted a deeper cut.) Most Fed officials favor staying the course from here. Specifically, five of the 17 participants in the meeting objected to the Fed's two rate cuts this year; five want no further rate cuts; and seven want to cut rates further.

Powell, for his part, dismissed the notion the widening dissent poses a problem. "This is a time of difficult judgments and, as you can see, disparate perspectives. And I really do think that's nothing but healthy," he said. "And so, I see a benefit in having those diverse perspectives, really."

But Powell's two-step in his news conference also speaks to the squeeze facing the central bank. "Fed officials are trying to help keep the economy growing without fanning inflation or squelching growth," my colleague Heather Long writes. "The economy is sending mixed signals about whether it might slow markedly next year or continue chugging along. And a strong economy is key to [President] Trump's re-election effort in 2020. He has tried to frame the Fed as a primary culprit if there's any slowdown."

Indeed, Trump lashed out at his hand-picked central bank chief on Twitter within minutes of the rate cut announcement, calling him a "terrible communicator."

Powell declined to respond to Trump's tweet or his other recent attacks (as Heather notes, since the Fed's last meeting at the end of July, "Trump has tweeted or retweeted 43 times criticizing the central bank and calling for deeper rate cuts. He has called Powell a 'bonehead' and 'enemy' for not lowering rates faster.")

"I'm not going to change my practice here today of not responding to comments or addressing comments made by elected officials," Powell said. "I will just say that I continue to believe that the independence of the Federal Reserve from direct political control has served the public well over time, and I assure you that my colleagues and I will continue to conduct monetary policy without regard to political considerations."

But he also made clear, without invoking Trump, that the president's trade war and slowing global growth are driving uncertainty that is dragging on the domestic economy. "Trade developments have been up and down, and then up, I guess, or back up, perhaps, over the course of this inter-meeting period. In any case, they've been quite volatile. So we do see those risks as actually more heightened now. We're going to be watching that carefully," he said, later adding, "we do feel that trade uncertainty is having an effect. You see it in weak business investment, weak exports."

To his point, the Business Roundtable's latest quarterly survey of top CEOs found chief executives downgrading their growth forecast for this year from 2.6 percent to 2.3 percent. And the lobby group's CEO Economic Outlook Index dropped 10.3 points from last quarter to 79.2, below that metric's historical average and its lowest reading during the Trump presidency. Business chiefs' plans for hiring and investment, and their sales expectations, all fell, too.

JPMorgan Chase CEO Jamie Dimon, who chairs the group, said while there "will be a recession again," his "own gut tells me it's not imminent." In the meantime, he chalked up the increasingly dour outlook among top executives to trade uncertainty.

"This quarter's survey shows American businesses now have their foot poised above the brake, and they're tapping the brake periodically," Roundtable CEO Josh Bolten said in a statement. "Uncertainty is preventing the full potential of the economy from being unleashed, limiting growth and investment here in the U.S."