Powell reduced Fed flexibility by going off-script post-policy

He broke with official policy by almost ruling out a March rate cut

- MOHAMED A. EL-ERIAN

For several months, I have pushed back against the market expectation that interest-rate cuts would start as early as March. Last fortnight, I said that June was much more probable. So you would expect me to welcome last week's remarks by Fed Chair Jerome Powell that a rate reduction in March is not the Fed's "base case." The problem is that this was handled in a way that unnecessarily robs the central bank of policy flexibility while lengthening its long list of recent communication mishaps.

Start with the signalling after the twoday meeting of the Federal Open Market Committee (FOMC), the central bank's rate-setting panel. It started on time, with the release of the panel's statement. Carefully crafted, it maintained considerable policy optionality by, first, noting that the risks to "employment and inflation goals are moving into better balance," and then stating that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably towards 2%," its target.