- 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
- It will take some years of real wage gains for people to feel better about prices
- We are going to move carefully as this goes on, to increase chances we’ll get it right
- We don’t know where neutral is but we
- Our baseline for next year is to gradually move rates towards neutral
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% but it contrasts with the comment about moving carefully.
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.
