Powell Didn’t Break Any News on 60 Minutes

Stop obsessing over central bankers’ words. This is our main takeaway after Fed head Jerome Powell’s epic 60 Minutes interview Sunday night. We say this because several headlines pinned US Treasury yields’ Monday morning jump on Powell’s comments, yet after reading through all 7,894 words of the transcript Monday morning, we saw next to nothing actually new. Just the usual: Decisions are data-dependent, policymakers’ consensus forecast is for some rate cuts this year, they feel bad about inflation, and the economy is growing. In our view, none of this is actionable for investors.

Powell always looks like a jolly fellow, so we don’t mean anything personal when we say: This interview was boring. Actually, we think it is a compliment, because one of a Fed head’s toughest tasks is to satisfy the people’s desire for communication without painting policymakers into a corner. Former Fed head Alan Greenspan was the maestro of this “Fedspeak,” saying: “Since I’ve become a central banker, I’ve learned to mumble with great incoherence. If I seem unduly clear to you, you must have misunderstood what I said.” Well, this interview was chock full of Fedspeak, with many words saying very little. CBS’s Scott Pelley would ask straightforward questions about the timing of interest rate cuts, and Powell would unleash 100 words that boiled down to “it depends on the data.” What are you looking at as you determine whether to cut rates? Data. What will determine when you cut them? Data. What do you say to people disappointed you didn’t already cut rates? We are looking at data. Will you cut rates in March? Depends on the data. Have Fed forecasts changed since December? We will update those in March, and they will depend on the data. Data, data, data!

Where Powell was a little clearer, he largely matched his prior comments after last week’s Fed meeting, which alluded to the prospect of rate cuts when data—there is that word again!— support it. Avoiding prior Fed heads’ mistaken use of hard targets, he said it wasn’t necessary for inflation to get back to 2% y/y for the Fed to cut, just heading that way. But also that they didn’t have enough data to be convinced cutting rates is correct right now. It was all so noncommittal that headlines were torn over whether the earthshattering revelation was that the Fed wasn’t cutting imminently or that rate cuts were actually on the table. Yet neither is new! He talked about rate cuts but downplayed them for March’s meeting last Wednesday. The 60 Minutes chat simply reiterated the prior message.

So did Powell’s words move the market? In taking a page from his non-committal book, we would say: Maybe, but maybe not. Considering Treasury yields’ jump was part of a global move, it seems weird to say he was the culprit. That would be an odd reason for yields to rise in Britain, Germany, France, Sweden, Spain, Italy and a host of others. We guess stranger things have happened, but we don’t think reading into daily moves is a great use of time. Sometimes volatility is just volatility.

Even if Powell had been more committal, with firm guidance and clear targets, we don’t think it would be much use for investors. Prior Fed heads have done this, then changed their minds when they reached whatever thresholds they had set and the other data didn’t support a policy change. Powell’s predecessor, Janet Yellen, said in early 2014 that rate hikes would probably come “six months or so” after quantitative easing ended, but those six months came and went. Before that, Ben Bernanke said ending zero interest rate policy wouldn’t be on the table until unemployment was at least down to 6.5%, which everyone interpreted as a threshold—and which came and went with no rate hikes for years afterward. And lest you think this is unique to the Fed, former Bank of England Governor Mark Carney’s defiance of his own forward guidance led a Member of Parliament to call him Britain’s “unreliable boyfriend” during an infamous committee hearing.

Whether central bankers say everything or nothing, we just don’t think their decisions are predictable. As Powell made such a Herculean effort to get across, their decisions depend on incoming data—a whole range of it. Predicting decisions requires not just predicting how the data will look, but how a slew of people with differing views, philosophies and biases will interpret those data and translate those interpretations into beliefs about monetary policy. These are all messy, human processes—not the kind of market-based functions you can assign probabilities.

Thankfully, it also isn’t necessary to predict the Fed’s next move. Not only does monetary policy hit the economy at a lag, giving time to assess decisions’ merit and potential impact, but interest rates are just one variable affecting the economy. And a small one at that. They matter, but a host of other things matter more.

As for stocks, we think they are looking through all of this. This bull market is nearly 15 months old now. For its duration, the Fed has either been hiking or on pause. So we think it is logical to deduce that markets don’t need rate cuts. Yes, people think rates must fall to justify today’s valuations, but in our view, this is a function of skepticism. Valuations very often fail to predict market direction and it is common for people to think stocks are overvalued early in bull markets—an expression of sentiment still tainted by the prior bear market. It is also normal for people to think stocks need a new reason to rise once a bull market has been chugging along for a while. Few fathom that stocks’ natural tendency is to rise unless they have a reason not to. So the obsession with rate hikes’ driving the next leg higher tells us there is more wall of worry for this young bull market to climb.