Jerome Powell delivered what, on a quick read, sound like some perfunctory remarks at a “Fed Listens” event in Washington on Friday.
“As we kick off this 12th of 14 Fed Listens events, Governor Brainard, Governor Bowman, and I hope that today’s meeting is anything but stuffy”, Powell told an audience. “Candid and serious, yes. But not stuffy”.
No, “not stuffy”, because if there’s anything that gets temperatures to risin’ and blood to boilin’, it’s comprehensive reviews of strategies, tools and communications practices around monetary policy. Here are the only relevant lines from Powell’s opening remarks:
Now is a good time to conduct the review. Unemployment is near a half-century low, and inflation is running close to, but a bit below, our 2 percent objective. While not everyone fully shares economic opportunities and the economy faces some risks, overall it is–as I like to say–in a good place. Our job is to keep it there as long as possible. While we believe our strategy and tools have been and remain effective, the U.S. economy, like other advanced economies around the world, is facing some longer-term challenges–from low growth, low inflation, and low interest rates. While slow growth is obviously not good, you may be asking, “What’s wrong with low inflation and low interest rates?” Low can be good, but when inflation–and, consequently, interest rates–are too low, the Fed and other central banks have less room to cut rates to support the economy during downturns.
So, in this review, we are examining strategies that might better allow us to symmetrically and sustainably achieve 2 percent inflation. Doing so would help prevent inflation expectations among consumers, businesses, and investors from slipping too low, as they appear to have done in several advanced economies. More-firmly anchored expectations, in a virtuous circle, would help keep actual inflation around our target, thus preserving our ability to change interest rates as appropriate to meet our mandate. We are also looking at whether our existing monetary policy tools will be adequate when the next downturn comes. Finally, we are asking whether our communications practices can be improved to better support the effectiveness of our policy.
Again, there’s nothing in those comments that should be relevant for market participants, or at least not for traders.
Equities didn’t budge on the headlines, leaving the Goldilocks reaction to the September jobs report largely intact.
Around the same time Powell’s remarks were released, a handful of additional headlines crossed indicating the Fed chair chatted with Jamie Dimon and Michael Corbat on August 1, a day after the first rate cut since the crisis and the same day Donald Trump escalated the trade war.
Two weeks later, on August 14, Powell met with Brian Moynihan. That was the day the Dow plunged more than 800 points as the 2s10s inverted.
“Because Congress has granted the Federal Reserve significant protections from short-term political pressures, we have an obligation to clearly explain what we are doing and why”, Powell said Friday. “And we have an obligation to actively engage the people we serve so that they and their elected representatives can hold us accountable”.
Suffice to say one person who Powell “serves” is trying very, very hard to get Powell to “actively engage” in a dialogue.
So far, Jay hasn’t taken the bait.
Goldilocks story about 3 bears, no bulls ever mentioned.
I don’t care what certain people say, I like Jay Powell and hope he has a good, long run as Fed chair.
As for those record unemployment numbers, the Fed had nothing to do with that happening!
As an example: The dirty little secret behind jobless claims: record-low numbers aren’t all they seem
Dec. 9, 2018
If first-time jobless claims are historically low because fewer laid-off workers are applying, it could become a bit tougher to sniff out a weakening economy. Initial claims, released by the Labor Department every Thursday, typically reflect how many workers were laid off the week before, providing the best real-time gauge on the state of the economy.
In September, first-time claims sank to 202,000, lowest since 1969. The showing was especially impressive since the workforce is much larger than it was 50 years ago. On Thursday, the Labor department said claims fell 4,000 to 231,000 the week ending Dec. 1 . They’ve trended higher the past couple of months but are still well below the 300,000-plus weekly applications filed in the late 1990s and mid-2000s.
https://www.usatoday.com/story/money/2018/12/06/jobless-claims-near-record-lows-but-its-not-just-fewer-layoffs/2163481002/
Although this is tedious and not as exciting as impeaching trump, here is a very large clue related to the Fed’s recent repo adventures. The breadcrumbs sprinkled around the Fed SRF seem connected to Treasury, but specifically to the deficit, which of course doesn’t matter … maybe?
had posted about other related crumbs a few days ago from BPI’s Bill Nelson: “the Fed and Treasury elected to leave Treasury cash balances in the TGA rather than in deposits under the jointly run TT&L program even after interest rates began to rise, but there is no record of that decision in any FOMC minutes. Similarly, the Fed decided in 2015 to remove constraints on foreign official counterparties’ ability to vary the size of their investments in the Foreign Repo Pool; again, though, we cannot find this decision reflected in the FOMC minutes.”:
==> Chicago Fed Letter, No. 395, 2018
” … Second, as the figure shows, the Treasury occasionally reduces the account balance below the $150 billion minimum that it ordinarily targets. These reductions generally occur when the Treasury approaches the debt ceiling–a limit set by Congress on the amount of money the government can borrow. Similar to a household that wants to pay its bills without taking out a loan, the Treasury, when it faces a tight debt limit, must spend down its checking account until Congress allows it to borrow more. These factors mean that if the Treasury maintains its current approach to cash management, the Federal Reserve’s liabilities to the Treasury in future years will be both larger and more volatile than they were before the financial
Second, while the Fed remits virtually all of the earnings on its assets to the Treasury, it historically has retained some earnings as capital. Until 2015, the retained surplus was set equal to the capital paid in by commercial banks. Thus, the Fed’s total capital–the amount paid in by commercial banks plus the retained surplus–grew in proportion to the size of the banking system, as shown in figure 4. However, in 2015 Congress passed a law limiting the Fed’s surplus to $10 billion, and in February 2018, Congress further reduced the limit to $7.5 billion. To comply with the limit, the Fed transferred some of its surplus to the Treasury, reducing the amount of total capital. Going forward, the retained surplus will remain at $7.5 billion, while capital paid in by commercial banks will continue to reflect the size of the banking system. ”
https://www.chicagofed.org/publications/chicago-fed-letter/2018/395