Federal Reserve Chairman Jerome Powell: We expect growth to remain solid, labor markets to stay strong


Federal Reserve Chairman Jerome Powell is delivering a speech on “Aspects of Monetary Policy in the Post-Crisis Era” at the “French G7 Presidency 2019 – Bretton Woods: 75 Years Later, Thinking About the Next 75” event in Paris, France. 

Key notes from the speech: 

  • In our baseline outlook, we expect growth in the United States to remain solid, labor markets to stay strong, and inflation to move back up and run near 2 percent.
  • Uncertainties about this outlook have increased, however, particularly regarding trade developments and global growth.
  • US growth appears to have moderated.
  • Uncertainties are viewed around trade and global growth.
  • In addition, issues such as the U.S. federal debt ceiling and Brexit remain unresolved.
  • Fed saw core PCE running at 1.7% y/y in June.
  • Baseline Fed outlook is for US growth to remain solid but uncertainties have increased.
  • FOMC participants have also raised concerns about a more prolonged shortfall in inflation below our 2 percent target.
  • Long-run factors contributing to lower interest rates, growth and inflation likely to persist.
  • Manufacturing sector has been weak since the start of the year.
  • Market-based measures of inflation compensation have shifted down, and some survey-based expectations measures are near the bottom of their historical ranges.
  • Many FOMC participants judged at the time of our most recent meeting in June that the combination of these factors strengthens the case for a somewhat more accommodative stance of policy.
  • We are carefully monitoring these developments and assessing their implications for the U.S economic outlook and inflation, and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.
  • Growth in US consumer spending appears to have bounced back but business investment growth has slowed notably.
  • We will also assess these developments in the context of the broader structural changes monetary policymakers have been facing since the Great Recession.
  • I will focus on three tonight: the changed macroeconomic backdrop, the expanded toolkit, and the heightened focus on communication and transparency.

About Jerome H. Powell 

Jerome H. Powell took office as a member of the Board of Governors of the Federal Reserve System on May 25, 2012, to fill an unexpired term. On November 2, 2017, President Donald Trump nominated Powell to serve as the next Chairman of the Federal Reserve. Powell assumed office as Chair on February 5, 2018.

FX implications

It is much of the same here and there is little reaction so far as a rate cut is priced in. The market may be all but convinced that the Fed is set to cut rates at the July 31 FOMC meeting. We have heard from numerous Fed’ speakers in recent sessions advocating for a rate cut. Analysts at Rabobank argue that there is plenty of uncertainty about what path will be followed by policy makers beyond then.  “This week’s releases of US retail sales and production data will be closely watched with risky assets potentially sticking with the view that bad news is good news if it means a more aggressive policy reaction from the FOMC.  The Fed’s Beige book is also due for release this week.”

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