Ahead of Fed Chair Powell’s first semi-annual monetary policy report to Congress next week (brought forward to 2/27), The Fed has released his prepared remarks warning that “valuations are still elevated across a range of asset classes” and fears “signs of rising non-financial leverage.”
But before Powell’s remarks were dropped, both Dudley and Rosengren are on the tape this morning talking super dovish about QE as “useful to have in the toolkit for those times when the short-term interest rate tool may not be available,” adding that The Fed is “quite likely” to require large-scale asset purchases again because real rates will remain low due to slow productivity and labor-force growth.
And adding that “if LSAPs are indeed not effective, then the Fed may need to take other measures.”
So ‘whatever it takes’?
Furthermore, they attempted to calm market fears by claiming that balance-sheet normalization “has been non-disruptive” unlike the 2013 bond market taper tantrum.
The U.S. labor market is near or beyond full employment, while some pockets of finance are showing signs of rising leverage and high valuations, according to a Federal Reserve report.
“The labor market in early 2018 appears to be near or a little beyond full employment,” the Fed said in the February 2018 Monetary Policy Report published in Washington on Friday. “The unemployment rate is now somewhat below most estimates of its natural rate.”
The 55-page report, released days before Chairman Jerome Powell delivers his first semi-annual testimony before House and Senate committees, reprised recent economic data and the Fed’s policy actions. Powell will preside over his first meeting of the Federal Open Market Committee as chairman on March 20-21.
Overall financial vulnerabilities “remain moderate on balance,” according to the report. “Valuation pressures continue to be elevated across a range of asset classes.”
There are signs that “nonbank financial leverage has been increasing in some areas,” the report said, such as credit to stock investors such as hedge funds.
Full Prepared Remarks:
via Zero Hedge http://ift.tt/2F00dQk Tyler Durden