Powell Loves the U.S. Economy and Accomplishments of the Fed

There were no major U.S. economic reports on Tuesday which means all eyes were on Federal Reserve Chairman Jerome Powell and he didn’t disappoint. Giving a speech less than a week after his Fed press conference, it’s a good thing it he kept his notes because he basically delivered the same bullish speech.

Powell said he saw the U.S. economy generating highly optimistic expectations, with the unusual combination of low unemployment and inflation fueling hopes for an extended expansion.

In his speech on Tuesday, the central bank leader tried to explain the strange combination of the jobless rate at 3.9 percent and inflation around the Fed’s mandate of 2 percent. This is an unusual occurrence because historically, low unemployment has fueled inflation, which has sometimes forced the Fed into hiking interest rates rapidly.

Key takeaways from the speech:

“While these two top-line statistics do not always present an accurate picture of overall economic conditions, a wide range of data on jobs and prices supports a positive view,” Powell told economists at a Boston conference.

“In addition, many forecasters are predicting that these favorable conditions are likely to continue.”

“Since 1950, the U.S. economy has experienced periods of low, stable inflation and periods of very low unemployment, but never both for such an extended time as is seen in these forecasts,” Powell added.

Powell attributed the balance to aggressive Fed action to control and respond to inflation expectations.

Through forward guidance, the Fed has sought to manage those expectations and convince the public that it will keep inflation around the central bank’s 2-percent goal.

U.S. Treasury Markets

U.S. government debt yields fell Tuesday after speeches from Fed Chair Powell and Vice Chair Randal Quarles.

Powell pressured yields when he said, “From the standpoint of contingency planning, our course is clear:  Resolutely conduct policy consistent with the [Federal Open Market Committee’s] symmetric 2 percent inflation objective, and stand ready to act with authority if expectations drift materially up or down,” he said in Boston.

Quarles said before the Senate Banking Committee, “Asset size should be only one among several relevant factors in a tailoring approach,” he said in his prepared remarks. “We continue to evaluate additional criteria allowing for greater regulatory and supervisory differentiation across banks of varying sizes, and the Act reflects similar goals.”

The yield on the benchmark 10-year Treasury note finished lower at 3.067 percent, while the yield on the 30-year Treasury bond was down at 3.217 percent.