Powell Q&A: The economy is performing well

• We continue to make good progress on bringing inflation down
• We’re strongly committed to bringing inflation down to 2% over time but we stress ‘over time’
• There is some confidence that lower market rents we’re seeing will show up but there’s uncertainty on the timing
• There will be a combination of lower goods and services inflation bringing inflation down to 2% sustainably
• The risks are really two-sided now
• On the January PCE and CPI reports, we have reason to think there were seasonal adjustment effects there
• If you take Jan and Feb together, I don’t think the story of bumpy but lower inflation is unfolding
• I don’t think those numbers add to our confidence that inflation is coming down
• I don’t think we know if rates will be higher in the longer run
• We’re looking for data the confirms what we saw late last year that will give us higher confidence in inflation falling to 2%
• It’s still likely in most people’s view that we will have rate cuts this year, but depends on data
• We do think financial conditions are weighing on economic activity
• Wage growth is moderating to more sustainable levels
• Labor market is in good shape
• Initial claims are very, very low
• We are closely watching layoffs but don’t see it
• We don’t see cracks in the jobs market
• Strong job growth, in an of itself, is not a reason to hold off on rate cuts
• Fed is discussing the pace of balance sheet runoff, will have something ‘fairly soon’

Quotable:

“The risks are really two sided here. If we ease too much or too soon we can see inflation come back, and if we ease too late we can do unnecessary harm to employment and people’s working lives.”

The dollar is at the lows of the day as the market continues to sense that Powell isn’t going to pivot back to something hawkish and is likely to cut rates in June, baring a surprise.

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