Chairman Powell held his first press conference following the FOMC meeting. It was more concise but just as informative as those of his predecessor. As expected, the FOMC raised the target range for the federal funds rate by 25 basis points, and Chairman Powell delivered a message consistent with his recent testimony, reflecting a continuity in policy. His words may have been somewhat different from Yellen’s, but the message was essentially the same: the economy continues to improve; labor markets are tight; inflation is below target, and the return to policy normality will be gradual.

Interestingly, although the FOMC rate hike was widely anticipated, pundits and markets had a range of reactions to the hike and the message delivered. Some interpreted the decision and related materials as dovish: “Dollar Tumbles After Expected Rate Hike Due to Dovish Fed ‘Dot Plot.’Others put a hawkish spin on the action: “3 Utilities Stocks to Brave Powell’s Hawkish Rate Stance.” How could such divergent reactions be derived from the same press conference and SEP data that accompanied the FOMC’s decision? Part of the answer may lie in what information was given the most weight. Those who put a hawkish spin on the decision concentrate on the fact that the FOMC’s dot chart for 2018 kept three rate hikes penciled in, and 2019 showed four more hikes, with the median federal funds rate peaking at 3.4% in 2020. The more dovish interpretation focused more on Chairman Powell’s press conference, where he indicated that the FOMC would be willing to see inflation run somewhat above its 2% target and noted that growth may have moderated a bit from what it appeared to be late last year.

Perhaps the most relevant aspect of Chairman Powell’s press conference was the fact that he emphasized that the pace of policy normalization would be gradual and data-dependent. Furthermore, he stated that the FOMC would be flexible, that the risks to the forecasts were roughly balanced, and that there was considerable uncertainty as to whether there was, at present, a strong linkage between tight labor markets, wage increases, and inflation. He did not see signs of an incipient run-up in inflation that would put the Committee at risk of being behind the curve.