On the March FOMC

As markets expected, a rate hike and all the dots move up. But this is not tightening, it’s indexing the funds rate to the gradually rising neutral rate, rising along with growth and inflation expectations. Policy is no tighter today than it was after the prior rate hike in December. Powell didn’t compound his February blunders by failing to repeat Yellen’s key guidance language in the FOMC statement. In the post-meeting presser, he failed to explicitly embrace Yellen’s doctrine of tracking the neutral rate of interest. But he answered a question about it sensibly, and at least there was no nonsense about “overheating.” Powell has stumbled into a hawkish image, but as the first non-independent Fed chair since Miller, the risk is that he will be too dovish. Seeing through the risks arising from his seeming lack of a governing philosophy, this supports improving growth and inflation expectations which should, in turn, support higher long-term yields.