Special Fed Coverage: Powell Press Conference

Summary

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WSJ Your Money Briefing: Special Fed Coverage—Powell Press Conference

Date: September 26, 2018
Host: J.R. Whalen
Guest: Brett Ewing, Chief Market Strategist, First Franklin Financial
Episode Theme:
A detailed breakdown of the Federal Reserve’s decision to raise short-term interest rates, insights from Chairman Jerome Powell’s press conference, and the implications for U.S. and global markets, with expert analysis from Brett Ewing.

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Main Theme & Purpose

This special edition delves into the Federal Reserve’s quarter-point rate hike announced on September 26, 2018. The episode examines how the Fed navigates growth versus inflation risks, the interaction of U.S. policies with global economies, the role of tariffs and trade wars, and the outlook for markets in 2019. The discussion features expert context and predictions to better inform personal-finance decisions in light of central bank policy.

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Key Discussion Points & Insights

1. The Fed’s Balancing Act on Interest Rates

• Powell’s Dilemma: The Fed must carefully decide whether to raise rates to prevent economic overheating or risk missing its inflation targets by being too cautious.
  • Quote (Jerome Powell, 01:07):

    “We're always trying to work our way between sort of the two problems we face. One is that if we move too quickly, we can snuff out a recovery unnecessarily and inflation falls short of its 2% target; or if we move too slowly, we have an economy that can overheat... We're always trying to navigate between those two shoals.”

• Outlook for Future Hikes:
  • Ewing predicts continued gradual rate increases, possibly three to four in 2019, assuming current economic conditions persist, supported by strong equity markets and a stable dollar.
  • Quote (Brett Ewing, 01:46):

    "As long as the equity markets are staying strong and holding up... and the dollar is somewhat stable, that’s going to give a green light to the Fed to continue with their gradual rate hikes."

2. Market Conditions Supporting Rate Hikes

• Labor Market Strength:
  • U.S. employment is at near-historic lows for jobless claims, providing the Fed confidence to normalize policy.
    • Quote (Brett Ewing, 02:47):

      "The employment situation in the country is kind of making it easy for them... Four-week moving average is at lows going back to the late 1960s. These are some unprecedented numbers…"

• Fed Removes "Accommodative" Language:
  • Signifies a shift from stimulating growth to maintaining it, with caution not to overdo tightening.
    • Host’s Explanation (J.R. Whalen, 03:18):

      “They dropped the word ‘accommodative’—means that they are more or less pressing on the gas pedal… history will show they have to really be careful how quickly or how strongly they do this for fear of overheating the economy.”

3. Risks: Fed Policy, Market Reactions, and Global Factors

• Chance of Overshooting:
  • Ewing cautions that, at the end of a rate cycle, the Fed is one of the biggest risks if it misinterprets data and hikes too aggressively.
    • Quote (Brett Ewing, 03:38):

      "We always feel that when you're in the end of a rate cycle, the Federal Reserve is one of the biggest risks... they could overshoot or misinterpret the data."

• Global Considerations:
  • Fed is monitoring global conditions, including emerging markets and currency stability, in their policy decisions.
    • Quote (Brett Ewing, 01:46):

      “They are paying attention to emerging markets... it is important and it does affect the global growth story.”

4. Trade Tensions and Tariffs

• Powell’s View:
  • The Fed is wary of protracted trade conflicts, especially with China, and notes risks to both U.S. and global economies if tariffs escalate.
    • Quote (Jerome Powell, 04:50):

      “If this perhaps inadvertently goes to a place where we have widespread tariffs that remain in place for a long time, a more protectionist world, that's going to be bad for the United States economy and for American workers… and also for other economies.”

• Market Impact:
  • Supply chain disruptions are already affecting some companies’ performance.
  • Ewing sees the risk of a full trade war as not fully priced into the equity markets, which could cause significant disruption if realized.
    • Quote (Brett Ewing, 05:13):

      “We have companies that we're invested in right now and their stocks are getting hurt because of supply chain issues... a full on trade war, we do not believe that's actually priced in the stock market here.”

5. Opportunities in International and Emerging Markets

• Europe’s Recovery:
  • Signs of inflation returning to Europe could stimulate growth if trade tensions ease.
• Emerging Markets Value:
  • Ewing believes emerging markets, though recently hampered by global trade rhetoric, offer better risk-reward prospects than the U.S.
    • Quote (Brett Ewing, 06:30):

      “We believe the opportunity is much greater [in emerging markets] than actually here in the United States on a risk reward [basis].”

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Notable Quotes & Memorable Moments

• Jerome Powell on navigating economic risks (01:07):

  “We’re always trying to work our way between... if we move too quickly, we can snuff out a recovery... if we move too slowly, the economy can overheat.”

• Brett Ewing on labor markets (02:47):

  “Four-week moving average [for jobless claims] is at lows going back to the late 1960s... unprecedented numbers.”

• Jerome Powell on trade wars (04:50):

  “A more protectionist world, that’s going to be bad for the United States economy and for American workers and families and... for other economies.”

• Brett Ewing on emerging markets (06:30):

  “We believe the opportunity is much greater [in emerging markets] than actually here in the United States on a risk reward [basis].”

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Important Segment Timestamps

• 00:36–01:38: Fed rate hike and Powell’s explanation of policy “tightrope”
• 01:46–02:30: Market, dollar, and employment data supporting rate hikes
• 03:18–03:38: Shift in Fed’s policy posture, risks of overheating
• 04:18–05:40: Trade war/tariffs, global implications, market reactions
• 06:30–07:31: Outlook for Europe and emerging markets

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Tone and Takeaways

The episode maintains an analytical yet accessible tone, balancing technical insight with real-world financial impacts. It urges listeners to pay attention not only to Fed moves but also to how global events (such as trade wars) can influence markets and investment opportunities.

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Summary prepared for listeners seeking a comprehensive understanding of Fed policy implications (as of September 2018) and expert opinions on how to position personal finances and investments in response.

Transcript

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[J.R. Whalen]

With this special edition of your money briefing. I'm J.R. whelan at the Wall Street Journal in New York. The Federal Reserve on Wednesday said it will raise short term interest rates by another quarter percentage point. And Fed officials signaled they want to continue lifting them through next year to keep a strong economy on an even keel. We're joined by Brett Ewing, he's chief market strategist of First Franklin Financial. So, Brett, the Federal Reserve chairman Jerome Powell said that the Fed really does walk a tightrope in determining whether to raise rates and how quickly to raise them.

[Jerome Powell]

The question is what would the economy look like if you didn't raise rates? It would look very different, I think, if you didn't raise rates. We're always trying to work our way between sort of the two problems we face. One is that if we move too quickly, we can snuff out a recovery unnecessarily and inflation falls short of its 2% target or if we move too slowly, we have an economy that can overheat. So we're that that's happened through history. We don't see any signs of that now, but we're always trying to navigate between those two shoals.

[J.R. Whalen]

But with the Fed looking to raise rates several times next year in addition to December, they're looking for a lot of continued growth in the economy.

[Brett Ewing]

I really liked one of the comments that came out of Chairman Powell about that. They are paying attention to emerging markets because it is important and it is, it does affect the global growth story. Another area that I think that the Fed is really paying attention to is the dollar. The dollar and the equity markets. We feel as long as the equity markets are, are staying strong and holding up well here in the US and the dollar is somewhat stable, that that's going to give a green light to the Fed to continue with their gradual rate hikes. You know, I think 3 to 4 next year if that were the case, and I think it would be warranted considering the economic conditions stay the same.

[J.R. Whalen]

The Fed has a lot to work with here. They're Dealing with consumer spending, they're dealing with inflation, they're dealing with unemployment. So it is a multifaceted way for them to observe all the gears of a watch, if you will, of the economy. They kind of have to do that on a daily basis.

[Brett Ewing]

The employment situation in the country is kind of making it easy for them. So we're getting close to that full employment. Many believe we're obviously there, but we probably will get a little tighter in the unemployment numbers before year end. And if you look at the jobless claims, they're at lows. Four week moving average is at lows going back to the late 1960s. I mean, these are some unprecedented numbers that we're getting out of the jobs numbers right now.

[J.R. Whalen]

One of the things that was significant coming out of the Fed's statement on Wednesday was they dropped the word accommodative means that they are more or less pressing on the gas pedal to help stimulate growth in the economy. And you know, history will show that they have to really be careful how quickly or how strongly they do this for fear of overheating the economy.

[Brett Ewing]

Here at our firm, we always feel that when you're in the end of a rate cycle, that is the Federal Reserve is one of the biggest risks, we think, to the economy and that they could overshoot or misinterpret the data, if you will. But so far we believe that the Fed is on the right course. We believe the rate hikes are warranted. The market is accepting the rate hikes that are expected here in December so far. And we think that'll go through. It does change as the data changes. But again, we feel that if equity markets are up and the dollar is stable, that we would have continued gradual rate hikes going forward.

[J.R. Whalen]

Well, while the US Economy is in very good shape, there are things on the Fed's radar that have them very wary. And we'll discuss that with Brett Ewing in just a moment. We're speaking with Brett Ewing, chief market strategist of First Franklin Financial. So Brett Powell seemed to be very concerned about not only the implementation of tariffs as we have seen on Chinese goods this week, and the signs that we could have an all out trade war.

[Jerome Powell]

Fair trade under internationally accepted rules can be a good thing. I think if this perhaps inadvertently goes to a place where we have widespread tariffs that remain in place for a long time, a more protectionist world, that's going to be bad for the United States economy and for American workers and families and also for other economies.

[J.R. Whalen]

That seems to be very top of mind when it comes to the Fed

[Brett Ewing]

as well as it should be. I think that's a great example of the Fed staying in tune with the different regions and the business environment that we have there. And I could imagine they are getting a lot of expressions of concern from business leaders in each region because it's disrupting some supply chains. And whenever you have that, it can be stressful if you're a CEO of a, of a corporation that's publicly traded. I mean, we have companies that we're invested in right now and their stocks are getting hurt because of supply chain issues right now. And we do believe it's short lived. So if you're going to take the stance that this is going to full on escalate, you would be very dovish on the Fed because I think it would put the Fed in a position where they would ultimately probably not start raising rates too heavily in 2019 because I think it'd be very disruptive in the stock market. Look, equity markets don't like uncertainty and we believe the market is properly pricing in a trade scrimmage, if you will, but a full, full on trade war, we do not believe that's actually priced in the stock market here. So that would be rather disruptive. You know, one of the opportunities I think that's out there and many people are really overlooking is two fronts. On the international side, we're getting to a phase in Europe where they're starting to actually see inflation for the first time since the Great Recession. We feel that their economies could start picking up, especially if the trade rhetoric between Europe and the United States dies down more, an actual agreement gets put through. We think there's a lot of opportunity that could come out of some developed international. But really on the emerging market front, we think that this is a, this is a story that really goes back to 2016, January, and we feel there was a major global reset at that period on the international markets. And we don't believe what we've broken out of that we've had a period here because of all the trade rhetoric where we've had to pull back in those markets. But we believe the opportunity is much greater there than actually here in the United States on a risk reward.

[J.R. Whalen]

That is Brett Ewing, chief market strategist of First Franklin Financial, joining us from Tallahassee, Florida. Brett, thanks for being with us.

[Brett Ewing]

Absolutely. Thank you for having me on.

[J.R. Whalen]

And that's your Money Briefing special edition. I'm JR Whalen in New York for the Wall Street Journal.

[Electronic Payments Coalition Representative]

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