Remember, this is the meeting where he talked over and over again about the disinflation in the economy (falling inflation). He said they had "covered a lot of ground" and that the full effect of their "rapid tightening so far are yet to be felt." And he said "real rates are positive," after telling us for the past year that "we'll want to reach positive real rates."
In my view, with core PCE (the Fed's favored inflation gauge) trending lower and right around the level of the Fed Funds rate, Powell (at that time) thought they had done enough.
For good measure, they had built in expectations for a few more hikes, via their "economic projections." Those expectations have a way of influencing consumer and business psychology, and therefore putting downward pressure on inflation (a tightening effect).
So, even though we had some hotter inflation data roll in to start the year, it's fair to argue that the Fed was already considering a pause.
Fast forward to tomorrow, and the Fed's concern should now be squarely on stability in the financial system AND the depth of impact this confidence shock will have on credit availability (i.e. the risk of a credit crunch).
Far worse than high inflation, is a deflationary bust (low or contracting economic activity and falling prices). Deflation can be impossible to escape. Ask Japan, now in a fourth decade of battling against it.
The Fed knows this very well, which is why they made a policy change in late 2020. Inflation had been (dangerously) too low for too long. Powell told us he would let inflation run hot, to bring inflation back to 2% on average OVER TIME.
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