The Fed: Fed’s Powell to markets: Don’t bank on more interest-rate cuts

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Fed Chairman Jerome Powell

Fed Chairman Jerome Powell’s chief mission at his news conference on Wednesday was to make the market think twice about how much easing has been priced in over the next year, according to one economist.

Powell’s message could be summed up as: “Dear Market, you should not expect we would deliver another 50 basis points in rate cuts,” Catherine Mann, global chief economist at Citi, said in an interview with MarketWatch.

The Fed was declaring a bit of independence from the market — but not a divorce.

Read: Fed cuts rates for third meeting in a row, signals pause

It was just that the Fed would not necessarily do what the market says it wants. The Fed would watch the data, Mann said, and it wants the market to watch, too.

Brett Ryan, senior U.S. economist at Deutsche Bank Securities, agreed the Fed has flipped the script.

Since the Fed started pondering rate cuts in June, the Fed’s message was it needed to see improvement in the data not to ease, Ryan said.

Now, the Fed needs to see material deterioration in the data to justify further easing, he added.

Mann said the Fed wanted to push back on investor worries about the health of the economy.

“The market has consistently underestimated the strength of the domestic part of the economy,” she said. “We have historically strong labor markets. That’s a big difference” from past soft patches, she noted.

Mann said she expects the economy to grow around a 2% annual rate through the end of 2020.

“We’re very far away from a recession,” Mann said.

It is hard to say whether the market has gotten the message.

Read: Fed’s confidence in pause ‘on thin ice’

Ryan said it can be difficult to gauge the Treasury market at the end of the month.

Traders who bet on rate cuts using fed funds futures contracts currently see the chance of two rate cuts by next November at 20%. That’s down slightly from a premeeting view of a 30% chance, according to CME’s FedWatch tool.

Odds of a rate cut in December are at 30%. The market has another quarter-point cut fully priced in by next April.