Powell Q&A: We’re not at the stage where bond rates need to be taken into policy

• We’ve watched the run-up in bond rates and they’re nowhere near a year ago. We will see where they settle
• We’ve all read decompositions on why yields have moved up but we think they’re about fewer downside risks and better growth (not inflation)
• We don’t guess, speculate or assume on fiscal policy
• Data has been stronger than expected in the inter-meeting period
• Some of the downside risks have been taken away
• Overall, we’re feeling good about economic activity
• We had one inflation report that wasn’t as good as hoped
• We will make a decision on rates in December when we get there
• Jobs report wasn’t terrible but was worse than expected
• The latest economic data has been strong
• Policy is still restrictive but we feel it is still restrictive and labor market has cooled a great deal and is essentially in balance
• We don’t need further cooling to achieve our goals
• Powell says there is no signal in the removal of the line about “gaining greater confidence”
• When we are at neutral, or close to neutral, we might slow the pace of rate cuts…something we are just beginning to think about
• This isn’t a tight economy. A lot of the inflation we’ve seen this year has been catch-up inflation
• Labor market is continuing to very gradually cool, is in a good place
• The right way to find neutral is very carefully
• We don’t think we need inflation to soften much to get inflation back to 2%
• Powell says if he was asked to resign he wouldn’t

The comment about the pace of rate cuts and getting back to neutral is dovish, that highlights a very high probability of a cut in December and continuing through 4%.

I think Powell is referring to 5% rates last October but I certainly wouldn’t say 10s are ‘nowhere near’ last year at this time.

This article was written by Adam Button at www.forexlive.com.