MNI ANALYSIS: Fed's Powell Signals Little Changed Views

By Jean Yung

     WASHINGTON (MNI) - Federal Reserve Chair Jay Powell in a major speech on

monetary policy Friday emphasized that U.S. job growth remains solid and healthy

but that the labor market is not "excessively tight," bolstering the Fed's case

for gradual interest rate hikes over the next few years. 

     He avoided discussing in too much detail inflation dynamics, in spite of

the focus on the topic in recent months, saying only that monthly inflation

readings have firmed over the past few months and that year-over-year inflation

should "move up notably this spring" as last spring's soft readings drop out of

the calculation. 

     There was no mention of the symmetry of the Fed's inflation target even as

a growing chorus of Fed officials are publicly contemplating allowing inflation

to rise above 2% for a time to strengthen the perception of the target's

symmetrical nature. 

     Neither did he discuss in detail fiscal and trade policy or the latest

March employment report, out Friday, showing the economy added a

smaller-than-expected 103,000 jobs. 

     Powell instead emphasized longer term labor market trends, saying many

measures of labor utilization "suggest a labor market that is in the

neighborhood of maximum employment," while "a few other measures continue to

suggest some remaining slack." 

     In particular, "the absence of a sharper acceleration in wages suggests

that the labor market is not excessively tight," he said in remarks prepared for

The Economic Club of Chicago. While he does expect an additional pickup in wage

growth as the labor market strengthens further, weak productivity growth could

continue to keep a lid on wage gains.

     "It remains the case that raising rates too slowly would make it necessary

for monetary policy to tighten abruptly down the road, which could jeopardize

the economic expansion. But raising rates too quickly would increase the risk

that inflation would remain persistently below our 2% objective," he said. "Our

path of gradual rate increases is intended to balance these two risks."

     He mentioned the Trump administration's fiscal stimulus only once, noting

that it as well as continued accommodative financial conditions are supporting

both household spending and business investment. 

     In a brief Q&A with a moderator after the speech, he said recent trade

tariff discussions are still at a "relatively early stage" and have not yet

created implications for the FOMC's outlook. 

     "We don't know the extent to which the tariffs will actually come into

effect and if so, how big will that effect be and what will the timing of it be.

It's really too early to say," he said. 

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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