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MarketScape · 05.02.24

Fed Chair Powell Lays Out Macroeconomic Scenarios

We saw a dovish slant to Powell’s remarks at yesterday’s press conference, with no rate hikes in sight.

  • Markets & Economy
  • Central Banks
  • Monetary Policy
  • Commentary

Key Points

What it is

At his latest press conference, Federal Reserve Chair Jay Powell spoke about different “paths” or scenarios for the U.S. economy and their potential implications for U.S. monetary policy, with no rates changes planned.

Why it matters

To us, Powell’s chosen scenarios shed light on the Fed’s inclinations and the outlook for interest rates.

Where it's going

We anticipate the Federal Reserve will continue with their strategy of continuity and caution in the face of uncertain economic times.

My colleagues and I on the Northern Trust Fixed Income Team spend a significant amount of time analyzing macroeconomic scenarios and their potential implications for the portfolios we manage.  This is a key element of our investment process.  So, we were more than a little excited when we heard Federal Reserve Chair Jay Powell speak yesterday at his press conference about different “paths” or scenarios for the U.S. economy and their potential implications for U.S. monetary policy. To us, his chosen scenarios shed light on the Fed’s inclinations and the outlook for interest rates.  Let’s take a closer look.


Chair Powell acknowledged that inflation surprised to the upside in the first quarter but maintained his personal forecast that inflation will move back down over the course of this year. Addressing future uncertainties, he laid out three possible scenarios for the U.S. economy, starting with what appears to be his “base case” scenario.  This scenario closely mirrors his own forecast, featuring a downward trend in inflation that would give the  greater confidence to start cutting rates.


In the two other scenarios outlined by Powell, the economic outcomes diverge from his personal forecast.  We will call them “risk cases.” The first risk case involves inflation proving more persistent than expected, with the Committee gaining no greater confidence that inflation is heading to 2 percent sustainably. He noted that this scenario “would be a case in which it could be appropriate to hold off on rate cuts.” The second risk case scenario features “an unexpected weakening in the labor market,” in which case, he said, cutting rates could be appropriate.


We saw a dovish slant to Powell’s two risk cases, particularly as , which he characterized as “unlikely.” We took Powell’s consideration of labor market weakness as consistent with the FOMC’s assessment that the risks to achieving its maximum-employment and price-stability goals are becoming more balanced.


Although Powell avoided specific timelines, we drew some timing clues from other remarks he made at the press conference.  For instance, he noted that following higher-than-expected inflation in January and February, the Committee “reserved judgment” until it “had a full quarter’s data.”  Using this simple metric and taking into account the significant progress we saw on the inflation front last year, it seems to us that a rate cut in September remains on the table.  By then, the FOMC will have seen another quarter’s worth of data, plus inflation readings for July.

Main Point

No Rate Changes in Powell’s Macroeconomic Scenarios

In his latest remarks, Federal Reserve Chair Jay Powell spoke about different “paths” or scenarios for the U.S. economy and their potential implications for U.S. monetary policy, none of which included rate hikes or cuts.

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Antulio N. Bomfim

Head of Global Macro – Global Fixed Income

Antulio Bomfim, head of global macro for the global fixed income team, oversees interest rate strategy, systematic volatility, liquidity and monitoring of systemic risk globally. He is also responsible for the firm’s global liquidity management business.

Read Bio

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