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REPEAT:MNI 5 THINGS:Fed's Powell:Strong Case For Gradual Hikes

Repeats Story Initially Transmitted at 16:31 GMT Jun 20/12:31 EST Jun 20
--5 Things We Learned From Chairman Powell's Speech
By Sara Haire
     WASHINGTON (MNI) - Federal Reserve Bank Chairman Jerome Powell spoke
Wednesday at the ECB Forum on Central Banking. Here are 5 things of note from
the speech.
     - Powell maintained that "the case for continued gradual increases in the
federal funds rate is strong." Powell started off the same way he did at his
June 13 press conference following the Fed's decision to raise interest rates,
by emphasizing that economy is "performing very well." He highlighted a
"particularly robust" labor market, inflation moving closer to the Fed's 2%
objective, and growth above long-term trend estimates. However, he did note that
growth trends are not as strong as they would like and that inflation has not
yet been sustained at the Fed's 2% objective. In the Q&A portion, Powell said
that monetary policy remains accommodative and "will continue to try very hard
to carry out our mandate and avoid surprises as possible." He did, however,
caution that the Fed may offer less forward guidance as it shifts toward press
conference after every meeting in 2019.
     - During the Q&A portion on the topic of effects from trade policy and
tariffs, Powell briefly touched on the topic where he noted that if "principal
changes" were made to trade policy, this could spur the Fed to question their
outlook. Powell has been careful to avoid discussing trade policy, stressing
that it is outside the realm of the Fed's control, but could shape their
outlook. However, Powell in his speech retained that risks "appear roughly
balanced." The tailwinds currently outweigh the potential headwinds, Powell
cited economic growth, likely to be boosted by the fiscal stimulus in the next
few years.
     - Powell addressed the notion of sustainability as the unemployment rate
continues to drop to levels not seen since the 1960. He explained that the
changes in history may mean the comparison may not be able to 'shed as much
light" on the sustainability of a low unemployment rate. He explained that a lot
has changed in the last 50 years, including continued "low and stable"
inflation, a greater number of people with higher education, and that the
estimates for the natural rate in the 1960s were considerably higher than
estimates today.
     - Since there is no history to reflect on, Powell stressed how natural rate
of unemployment estimates remain uncertain, and are even more so now that
inflation has becomes even less responsive to the unemployment rate. "The
anchoring of inflation expectation has likely played a role in the flattening of
the Phillips curve," Powell said, and continued on to give part credit for the
well-anchored inflation expectations to central banks for keeping inflation
"under control." He added that some longer-term inflation expectations have
"edged lower" in recent years. In responding to questions, Powell underlined the
importance in making sure there is effective communication, and the removal of
the forward guidance language as the U.S. moves to normal policy environment
allows for that.
     - While strong economic conditions are inherently good, Powell noted that
confidence can quickly turn into overconfidence, and the last two recessions
have been caused by "financial imbalances, not high inflation." Despite the
economy ramping up, Powell views "U.S. financial stability vulnerabilities as
moderate," and despite some high asset prices, does not see "broad signs of
excessive borrowing or leverage."
--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

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