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Pullback Considered Corrective


Holding Above Recent Lows


BLOCK, Large 3Y Midcurve Put Condor

Repeats Story Initially Transmitted at 21:12 GMT Apr 8/17:12 EST Apr 8
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: