Central Banks

Powell answers questions from the media

  • Gradual hikes limit long and variable lag issues

  • We don’t consider political factors

  • We take broader financial conditions into account

  • Some participants have very modest overshoots of neutral in 2020 and beyond

  • We go into each meeting, it’s hard to be confident that far into the future

  • We’re trying to balance between moving too fast and too slow

  • I’m in the camp of seeing financial vulnerabilities as moderate

  • On trade our contacts worry about supply chains

  • The big question is the long term and where this leads, if it ultimately leads to lower tariffs overall, that’s good

  • If you look at aggregate performance, then it’s hard to see much [tariff] impact so far

  • This is a pretty good moment for the economy

  • Too early to see supply-side effects from tax cuts; hope they come

  • If inflation surprise to the upside, we could move faster but “we don’t see that, we really don’t see that”

  • Would slow or stop hikes if financial markets fell or the economy unexpectedly slipped

  • Labor force participation has surprised us on the upside

  • We’re hearing a lot talk on labor shortages but we’re not seeing it yet in the data

  • The useful life of ‘accommodative’ has passed. We were messaging then that we weren’t hiking to cool the economy. That purpose has been served.

  • The Fed funds rate is still below the longer-run neutral rate of every single participant

  • Policy is still accommodative but we don’t want to suggest that we know where neutral is

  • We plan to stay on this path and looking at data, that means less thinking about precisely where neutral is

  • Dollar has only partially recovered decline of 2017

  • Wages and benefits at +3%, inflation about 2%

On accommodative. Powell is making the Frankenstein argument. Basically saying they created a monster and are trying to kill it. They just want to focus on data and stay on path, evaluating as they go. Still, there is a path and it’s towards higher rates and it sounds like the path is to hike at the current pace until they see a reason not to.

Bottom line: The plan is to hike at the current pace until they see a reason not to. Neutral/acommodative argument less important. Overall, that’s hawkish.


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