Category Archives: Jerome Powell

Jerome Powell’s June 13, 2018 Press Conference – Notable Aspects

On Wednesday, June 13, 2018 Jerome Powell gave his scheduled June 2018 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of June 13, 2018, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, June 2018“ (pdf).

From Jerome Powell’s opening comments:

Good afternoon and thank you for being here. I know that a number of you will want to talk about the details of our announcement today, and I am happy to do that in a few minutes. But because monetary policy affects everyone, I want to start with a plain-English summary of how the economy is doing, what my colleagues and I at the Federal Reserve are trying to do, and why. The main takeaway is that the economy is doing very well.

Most people who want to find jobs are finding them, and unemployment and inflation are low. Interest rates have been low for some years while the economy has been recovering from the financial crisis. For the past few years, we have been gradually raising interest rates, and along the way, we have tried to explain the reasoning behind our decisions. In particular, we think that gradually returning interest rates to a more normal level as the economy strengthens is the best way the Fed can help sustain an environment in which American households and businesses can thrive. Today, we have taken another step in that process by raising our target range for the federal funds rate by a quarter of a percentage point.

also:

After many years of running below our 2 percent longer-run objective, inflation has recently moved close to that level. Indeed, overall consumer prices, as measured by the price index for personal consumption expenditures, increased 2 percent over the 12 months ending in April. The core PCE index, which excludes the prices of energy and food and tends to be a better indicator of future inflation, rose 1.8 percent over the same period. As we had expected, inflation moved up as the unusually low readings from last March dropped out of the calculation. The recent inflation data have been encouraging, but after many years of inflation below our objective, we do not want to declare victory. We want to ensure that inflation remains near our symmetric 2 percent longer-run goal on a sustained basis. As we note in our Statement of Longer-Run Goals and Monetary Policy Strategy, the Committee would be concerned if inflation were running persistently above or below our 2 percent objective. Of course, many factors affect inflation, some temporary and others more lasting, and at any given time inflation may be above or below 2 percent. For example, the recent rise in oil prices will likely push inflation somewhat above 2 percent in coming months. But that transitory development should have little if any consequence for inflation over the next few years. The median of participants’ projections for inflation runs at 2.1 percent through 2020. Relative to the March projections, the median inflation projection is a little higher this year and next.

Jerome Powell’s responses as indicated to the various questions:

STEVE LIESMAN. Steve Liesman, CNBC. Mr. Chairman, you said there’s a difference of opinion among economists. But looking at the longer-run GDP growth rates for the members of the Committee, there’s not a whole lot of differences. It’s one 8 to 2, or one 7 to 2, 1, depending upon how you count it. Is that showing us that not a single member of the Committee, including yourself, Mr. Chairman, agrees with economists over at the White House that they can achieve long-run sustained growth rates above or at 3 percent or higher? Do you believe in that?

CHAIRMAN POWELL. You know, first of all, that’s a — that’s a reasonable range, I think, of — it’s not that we’re all on the same number. But there are a range of views about potential growth. And there’s so much uncertainty around this. You know, we don’t — the thing about fiscal policy is, you don’t have thousands of incidents to, you know, to — you don’t have big data, in a way. You have very small data. You’ve got only a few instances here, so you have a lot of uncertainty around what the effects will be. They could be large. We hope they’re large. But I think our approach is going to be to watch and see and hope that in fact, we do get significant effects to, you know, to potential growth out of the tax bill and we’re just going to have to see. I think we’re looking at a reasonable range of estimates and we’re putting every — different participants are putting different estimates in and we’re going to be waiting and seeing.

also:

MARTIN CRUTSINGER. Marty Crutsinger, Associated Press. At this meeting, you hiked your — the funds rate, you changed the dot plot to move from 3 to 4 for this year, and you took out a sentence that you’d been using for years about how long rates might stay low. But you say that none of this signals a change in policy views. But shouldn’t we see from this combination of things that the Fed is moving to tighter policy?

CHAIRMAN POWELL. I think what you should see is that the economy is continuing to make progress. The economy has strengthened so much since I joined the Fed, you know, in 2012 and even over the last couple of years. The economy is in a very different place. We — unemployment was 10 percent at the height of the crisis. It’s 3.8 percent now and moving lower. So, really what you — the decision you see today is another sign that the U.S. economy is in great shape. Growth is strong, labor markets are strong, inflation is close to target, and that’s what you’re seeing. For many years, as I mentioned, many years, we had interest rates held low to support economic activity. And it’s been clear that as we’ve gotten closer to our statutory goals, we should normalize policy, and that’s really what we’ve been consistently doing for some years now.

HEATHER LONG. Heather Long from the Washington Post. Can you give us an update on what the FOMC thinks about wages? Are we finally going to see that wage growth pick up this year? I know you’re forecasting a little bit more inflation, but is that going to translate through to wage growth?

CHAIRMAN POWELL. You know, wages have been gradually moving up. Earlier in the recovery, they were — there are many different wage measures, of course, but — so just — but just the generalized wages were running roughly around 2 percent and they’ve moved gradually up into between 2 to 3 percent, as the labor market has become stronger and stronger. I think it’s fair to say that some of us — and I certainly would have expected wages to react more to the very significant reduction in unemployment that we’ve had, as I mentioned, from 10 percent to 3.8 percent. Part of that can be explained by low productivity, which is something we’ve talked about at the Committee and elsewhere. But nonetheless, I think we had anticipated and many people have anticipated that wages — that in a world where we’re hearing lots and lots about labor shortages — everywhere we go now, we hear about labor shortages, but where is the wage reaction? So, it’s a bit of a puzzle. I wouldn’t say it’s a mystery, but it’s a bit of a puzzle. And frankly, I do think there’s a lot to like about low unemployment. And one of the things is, you will see pretty much people who want to get jobs — not everybody — but people who want to get jobs, many of them will be able to get jobs. You will see wages go up. You’ll see people at the — sort of the margins of the labor force having an opportunity to get back in work. They benefit from that. Society benefits from that. So, there are a lot of things to really like, including higher wages, as you asked. Our role though, is also to, you know, to make sure that that maximum employment happens in a context of price stability and financial stability, which is why we’re gradually raising rates.

also:

VICTORIA GUIDA. I have a couple of regulatory questions. First of all, on the counter cyclical capital buffer, I was wondering, what are the chances that the Fed is going to need to use that in the next year or two? And then my second question is, there’s been a lot of talk lately in Congress about the ability for banks to serve marijuana businesses, and I was wondering if you think that banks should be able to serve those businesses in states where marijuana is legal?

CHAIRMAN POWELL. So, the counter cyclical capital buffer gives us the ability to raise capital requirements on the largest institutions, when financial stability vulnerabilities are meaningfully above normal, that’s the language that we’ve used. And that’s certainly a possibility. I wouldn’t say that — I wouldn’t look at today’s financial stability landscape and say that risks are meaningfully above normal. I would say that they’re roughly at normal. You have — you know, households are well — you know, are in good shape. They’re — they’ve pay down their debt, incomes are rising, people have jobs. So, households are not really a concern. And banks are highly capitalized, so that’s not really a concern. We see — there’s some concern with asset prices in a couple of pockets. But overall, if you if you bake it all in, I think we see generally financial vulnerabilities as moderate. Could that change, you asked, over a couple of years? Yeah, they could. You also asked about marijuana businesses. So, this is a very difficult area because we have state law — many state laws permit the use of marijuana and federal law still doesn’t. So, it puts, you know, federally chartered banks in a very difficult situation. I think it would be great if that could be clarified. We don’t have, you know — it puts the supervisor in a very, very difficult position. And, of course, this isn’t — our mandate has nothing to do with marijuana, so we don’t really — we just would love to see it clarified, I think.

also:

STEVEN BECKNER. Steve Beckner, Mr. Chairman, freelance journalist reporting for NPR. About financial conditions, which worries you more, warnings that rising short-term rates are bringing the yield curve closer to inversion, or the fact that long rates have risen very slowly and in fact are nearly 20 basis points below their recent high? How do you account for the fact that long rates have been so slow to rise? And what does it say about the inflation outlook as well?

CHAIRMAN POWELL. So, let me — let me briefly mention the yield curve. I mean, I — the yield curve is something that people are talking about a lot, including FOMC participants. And I — they have a range of views. It’s something we’re going to continue to be talking about, it’s — but it’s only one of many things, of course, that we talk about. I think that that discussion is really about what is appropriate policy, and how do we think about policy as we approach the neutral rate. How do we understand what the neutral rate is? How do we know where it is? And what are the consequences of being above or below it? That’s really what — when people are talking about the slope of the yield curve, that’s really what they’re talking about. We know why – we know why the yield curve is flattening, it’s because we’re raising the federal funds rate. It makes all the sense in the world that the short end would come up. I think you asked the harder question is, what’s happening with long rates. And there are many things that move long rates around. Of course, there’s an embedded expectation of the path of short rates. There’s the term premium, which has been very low, by historical standards, and so arguments are made that a flatter yield curve has less of a signal embedded in it. In addition, I think what you saw most recently that you referred to, Steve, was just risk-on risk-off. In a risk-off environment, people want to own U.S Treasuries and you see, you know, Treasury prices go up, rates go down quite a lot. So — but I think ultimately, you know, what we’re — what we really care about is what’s the appropriate stance of policy. And there’s a — there may be a signal in that long-term rate about what is the neutral rate and I think that’s why people are paying attention to the yield curve.

NANCY MARSHALL-GENZER. Nancy Marshall-Genzer with Marketplace. Companies are buying back their shares at a record rate. Corporate debt is up. Consumer debt is rising. Are we in a credit bubble? Is that something that you’re worried about?

CHAIRMAN POWELL. So, if you look at households, you do not see excess credit growth. You don’t see high levels of credit going out, so not so much households. And that really was where the problems were before the financial crisis was, particularly in — among household borrowing, and particularly around mortgages. With — if you take banks, then of course, their leverage is significantly lower, or to say it differently, their capital is significantly higher. If you ask about non-financial corporates, that’s really where leverage is at levels that are high relative to history. But defaults are low, interest rates are low, you know, so it’s something — that’s something we’re watching very carefully. But again, I don’t think we see it as — I think there are a range of views on that, but we are watching non-financial corporates. Households are in good shape though, and that is — that is so important because that’s where — you know, that’s where we got into trouble before. And that’s — it’s often around property and particularly housing, where you see real problems emerge. We don’t really see that now, so we take some solace from that.

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2772.86 as this post is written

Jerome Powell’s March 21, 2018 Press Conference – Notable Aspects

On Wednesday, March 21, 2018 Jerome Powell gave his scheduled March 2018 FOMC Press Conference. (link of video and related materials)

Below are Jerome Powell’s comments I found most notable – although I don’t necessarily agree with them – in the order they appear in the transcript.  These comments are excerpted from the “Transcript of Chairman Powell’s Press Conference“ (preliminary)(pdf) of March 21, 2018, with the accompanying “FOMC Statement” and “Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, March 2018“ (pdf).

From Jerome Powell’s opening comments:

Job gains averaged 240,000 per month over the past three months, well above the pace needed in the longer run to absorb new entrants into the labor force.  The unemployment rate remained low in February at 4.1 percent, while the labor force participation rate moved higher.  Over the past four years, the participation rate has remained roughly unchanged.  That’s a sign of improvement, given that the aging of our population is putting downward pressure on the participation rate, and we expect that the job market will remain strong.

Although the growth rates of household spending and business investment appear to have moderated early this year, gains in the fourth quarter were strong and the fundamentals underpinning demand remain solid.  Indeed, the economic outlook has strengthened in recent months.  Several factors are supporting the outlook: fiscal policy has become more stimulative, ongoing job gains are boosting incomes and confidence, foreign growth is on a firm trajectory, and overall financial conditions remain accommodative.

Jerome Powell’s responses as indicated to the various questions:

MICHAEL DERBY. I’m Mike Derby from Dow Jones Newswires. I have a question about the future of the mechanics of monetary policy. I wanted to know whether you favor sticking with the system that you have now of keeping interest on excess reserves and reverse repo–the reverse repo rate to control interest rates, or do you want to shift back to the old way of doing things at some point of targeting the fed funds market? And, do you have any concern that if you do stick with the current system that as rates rise that you might see issues where the Fed is under–is being criticized for paying out ever larger shares of money to banks, you know, to control interest rates that some might perceive as a subsidy to the banks that are getting this money?

CHAIRMAN POWELL. Sure. Our current framework for implementing monetary policy is working very well. We have excellent control over rates, and it’s working. And it’s–you described it accurately. We haven’t made a decision to keep that as our longer-run framework. We haven’t really addressed that question. We’ve had meetings where we’ve talked about it, and we’ve agreed that it’s working well. But it’s–and it’s not something I see us as needing to urgently address. I think we’re continuing to learn about this framework. For example, one, in the longrun, the size of the balance sheet’s going to depend on the public’s demand for our liabilities, including currency and reserves. So, we don’t know what the demand is for reserves in a world where you have, you know, you have regulations that require banks to hold lots of high quality liquid assets, and reserves are one of those. So, it’s not something we’re looking at resolving in the near-term.

You mentioned the question of interest on excess reserves, and I think it’s a little bit of a misnomer to think that there’s a subsidy there. We pay interest on excess reserves. We can’t pay interest in excess reserves that is above the general level of short-term interest rates. So, we’re paying rates that banks can get from other interest rates from any other investment in the shortterm money markets. In addition, remember that those liabilities–those are our liabilities. The assets that we have on the other side are treasury securities and mortgage-backed securities, which we yield much higher than interest on reserves. So, in fact, it’s not a subsidy, and it’s not a cost to the taxpayer.

also:

GREG ROBB. Over here. Thank you, Chairman. Thank you very much. Greg Robb from MarketWatch. Several of your colleagues recently have been speaking and expressing concern about financial imbalances and rising signs of financial imbalances. I was wondering if you could give us your view on the asset markets. Are–do you see any bubbles? And do you have the tools you need, you think, to combat those? Thank you very much.

CHAIRMAN POWELL. Since the financial crisis, we’ve been monitoring financial conditions and financial stability issues very carefully, and the FOMC receives regular briefings about the staff framework and sort of measures of various aspects of financial stability risks, and the current view of the Committee is that financial stability vulnerabilities are moderate, let’s say, and I’ll go through a couple of pieces of that.

So, if you look at the banking system, particularly the large financial institutions, you see higher capital. You see much higher liquidity. You see them more aware of their risks and better able to manage them with stress testing. And if one–if something does go wrong, you’ve got better ability to deal with the failure of those institutions. So, therefore, you don’t see high leverage. You don’t see excess risk-taking in great quantity the way you see before the crisis. If you look at households, household balance sheets are in much better condition. If you look at nonfinancial corporations, you see–you do see relatively elevated levels of borrowing, but nothing that suggests, you know, serious risks. And, of course, default rates are very low. So, those readings look okay. I should mention also that for large financial institutions, they’re no longer funded by a lot of short-term wholesale funding, which can disappear very quickly. So, they’re far less vulnerable to liquidity issues. Overall, those aspects, I think, suggest low levels of vulnerability.

You identified the, really, one area where, which is an area of focus, which is asset prices. So, in some areas, asset prices are elevated relative to their longer-run historical norms. You can think of some equity prices. You can think of commercial real estate prices in certain markets. But we don’t see it in housing, which is key. And so, overall, if you put all of that into a pie, what you have is moderate vulnerabilities in our view. In terms of whether we have the tools, you know, we have some tools, and I think we certainly will use them. We have–I think the stress test is a really important tool that we have for the largest financial institutions and for the smaller financial institutions. We regularly use that to–as a way to test against various, you know, market shocks, certainly for the larger institutions.

also:

NANCY MARSHALL-GENZER. Nancy Marshall-Genzer with Marketplace. Does the interest rate hike today suggest that Americans are being paid enough? Are you satisfied with the rate of wage growth right now?

CHAIRMAN POWELL. As I mentioned, you know, we’ve had unemployment decline sharply since, I guess, 2010, when it peaked at 10 percent and down to 4.1 percent now, and we’ve seen only modest increases in wages. So, on the one hand, what wages should in theory represent is inflation plus productivity increases. You should get paid for your productivity plus inflation, and productivity’s been very low. Inflation’s been low. So, these low wage increases, in a sense, they do make sense in that–from that perspective.

On the other hand, as the market is tightened, as labor markets have tightened, and we hear reports of labor shortages that we see that, you know, groups of unemployed are diminishing, and the unemployment rate is going down, we haven’t seen, you know, higher wages, wages going up more. And I would–I think I’ve been surprised by that, and I think others have as well. In terms of what’s the right level, I don’t think I have a view on what the right level of wages is, but I think we will know that the labor market is getting tight when we do see a more meaningful upward move in wages.

also:

MYLES UDLAND. Thanks. Myles Udland, Yahoo Finance. Chair Powell, I’m curious if the Fed would be willing to tolerate an inverted yield curve. We continue to see these spread between the two-year and the 10-year tighten, even with longer-term yields coming up since the beginning of the year. This is a dynamic that has typically preceded recessions, and we’re likely to see shorter-term rates come up as the Fed continues to increase rates. So, I’m just curious if you guys have discussed that, if you’d be willing to push back against that, or if that’s a dynamic you’d be comfortable with?

CHAIRMAN POWELL. You know, it’s an interesting question, and there are a range of views there. I think it’s true that yield curves have tended to predict recessions if you look back over many cycles, but a lot of that was just situations in which inflation was allowed to get out of control, and the Fed had to tighten, and that put the economy into a recession. That’s really not the situation we’re in now, so I don’t know that that’s–I don’t know that–I don’t think that recession probabilities are particularly high at the moment, any higher than they normally are. But, having said that, I think it’s–there are good questions about what a flat yield curve or inverted yield curve does to intermediation. It’s hard to find in the research data, but nonetheless, I think those are issues that we’ll be watching carefully.

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 2686.76 as this post is written