Fed Chair Jerome Powell overtly pushed back against a March meeting rate cut during the press conference for today's FOMC meeting. That was the big headline grabbing moment.

But there were more important dynamics going on under the surface.

The most important point made during his hour-long press conference was as follows: no economic data weakness (jobs, GDP, industrial activity, etc) is needed for the Fed to start cutting rates. The only thing they need to see is data that gives them greater confidence that inflation (as measured by the Fed's preferred Core PCE measure) is well on its way back to sustainable levels at or near the Fed's 2% inflation target.

In other words, no trade-off is needed. The stock market can continue roaring higher. Unemployment can stay at multi-decade lows around 3.7%. GDP can keep blazing at 3-5%. And yet the Fed will still cut rates this year provided the inflation data continues to support the idea that it is destined to settle at target levels.

Powell discussed one important way to think about this: 

Q: But how much restraint are you imparting to the economy relative to neutral rate?

POWELL: Of course, you know it is not something you can identify with any precision, but a standard approach would be to take the nominal rate, 5.3%, let's say, and subtract sort of a forward measure of inflation. If you do that, there are many, many ways to calculate that neutral rate, but that is what I like to do. You will get to something materially above mainstream estimates of neutrality, of the neutral rate. You will. But, at the same time, you look at the economy and you say this is an economy that grew 3.1% last year. And you say, what does that tell you about the neutral rate? What is happening though, the supply side has been recovering in the middle of this. That won't go on forever. A lot of the growth we are seeing, it isn't just a tug-of-war between interest rates and demand. You are getting, you know, more activity because of labor market healing, and Supply Chains healing.

In other words, according to this view from Powell, there is a fundamental theory driving the Fed's forward policy path: The economy is holding up now despite higher rates because of a tailwind from the healing of supply chains in the post-pandemic world and also labor market supply healing including with growth in the labor force from a return to normal immigration levels. That tailwind will die out at some point, and likely soon. And the Fed will need to cut rates ahead of that to ensure a soft landing.

In addition to this overall dynamic, the FOMC members also revised the announcement statement in multiple ways. The most important was to remove language about any additional policy firming. But instead of replacing it with something more neutral, it was replaced by language pointing to the notion that they would need to see data that grants them greater confidence that inflation is moving sustainably toward 2 percent.

This led to a press conference largely focused on trying to ferret out how to precisely define this standard. 

Market participants are now left wrestling with the bullish implications of the notion that the Fed will be willing to cut rates even in a strong and robust economy (about as bullish as you can get) and the bearish implications of a wait-and-see approach to that first cut that may be unpredictable and could open to the door to a policy mistake in either direction.