The day’s most anticipated moment arrived, when moments ago Fed chair Jerome Powell released his speech titled “Changing Market Structure and Implications for Monetary Policy” which appears to have had zero surprises based on the preliminary assessment from Bloomberg which highlights the following key themes:
- Powell Sees Good Reason to Expect Strong Economy to Continue
- There Doesn’t Seem to Be Elevated Risk of Overheating
- Gradual Hikes Likely Appropriate if Growth Stays Strong
Powell also says that there are no clear signs of inflation accelerating above 2% (even those core CPI is now 2.4%), and curiously, Powell even explicitly cited Draghi saying:
As Brainard made clear, this is not a universal truth, and recent research highlights two particularly important cases in which doing too little comes with higher costs than doing too much. The first case is when attempting to avoid severely adverse events such as a financial crisis or an extended period with interest rates at the effective lower bound.
In such situations, the famous words “We will do whatever it takes” will likely be more effective than “We will take cautious steps toward doing whatever it takes.” The second case is when inflation expectations threaten to become unanchored. If expectations were to begin to drift, the reality or expectation of a weak initial response could exacerbate the problem.
I am confident that the FOMC would resolutely “do whatever it takes” should inflation expectations drift materially up or down or should crisis again threaten.”
For now, however, that does not appear to be a threat.
Another curious omission: no mention of Fed “independent” nor risks stemming from “trade”, however Powell did note that “there are risk factors abroad and at home that, in time, could demand a different policy response, but today I will step back from these.“
And some other speech highlights:
- “I see the current path of gradually raising interest rates as the FOMC’s approach to taking seriously both of these risks,” he says in text of speech at Fed’s annual policy symposium in Jackson Hole, Wyoming
- “With solid household and business confidence, healthy levels of job creation, rising incomes, and fiscal stimulus arriving, there is good reason to expect that this strong performance will continue”
- “While inflation has recently moved up near 2 percent, we have seen no clear sign of an acceleration above 2 percent, and there does not seem to be an elevated risk of overheating”
- “This is good news, and we believe that this good news results in part from the ongoing normalization process, which has moved the stance of policy gradually closer to the FOMC’s rough assessment of neutral as the expansion has continued”
- “As the most recent FOMC statement indicates, if the strong growth in income and jobs continues, further gradual increases in the target range for the federal funds rate will likely be appropriate”
In kneejerk response to his speech, the dollar slumped…
… and risk assets spiked.
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The full speech, which was devoid of any material surprises, is below (link)
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