Fed Chair Powell, speaking in an event Netherlands' Foreign Bankers' Association, in Amsterdam spoke to a number of topics in the hour long Q&A session.

Much was a rehash of the Fed presser last week of course. The USD is lower. Yields are trading near lows. Stocks are higher with the Nasdaq index leading the way.

Powell expects to hold policy rate where it is rather than reduce it. He does not expect the need to raise rates.

He did comment that the PPI data from earlier today was mixed. He characterized the housing inflation as puzzling. He does expect that inflation will come down toward the 2% target as policy remains restrictive. He does admit that the could take longer than expected to get inflation down. He said the economy was performing well and that consumer spending and business investment was strong. Unemployment and labor market remains very strong, but the sees signs of gradual cooling.

Below is a summary by topic.

  • Current Policy Rate:

    • The current policy rate is restrictive.
    • Likely to hold policy rate where it is rather than reduce it.
    • Fed will keep policy at the current rate for longer if needed to manage inflation.
    • Confidence in lowering inflation is lower than before, but progress has been made.
    • Fed focuses on present policy rather than longer-term neutral rates (R-star).

  • Credibility:

    • Credibility is essential for central banks, achieved by fulfilling mandates and avoiding politically fraught issues.
    • Credibility also comes from sticking to convictions.
    • There is strong bipartisan support in Congress for an independent Fed.

  • Policy Goals:

    • The Fed aims to return inflation to 2%.
    • Need to be patient and let policy work.

Inflation

  • Current Situation:

    • Q1 showed a lack of further progress on inflation.
    • PPI reading was mixed.
    • Housing inflation is puzzling; current rent increases are not yet reflected in rollover leases.
    • Non-housing services inflation may take the longest to decrease.

  • Expectations and Challenges:

    • Inflation may take longer than expected to come down.
    • Expect inflation to move back down, though it requires patience.
    • Homeowners and businesses locked in lower rates, reducing the immediate impact of policy.
    • Real progress has been made on inflation.

Consumer Spending/Growth/GDP

  • Economic Performance:

    • The US economy is performing well.
    • Consumer spending and business investment are strong.
    • Expect continued GDP growth of 2% or better.

  • Post-Pandemic Economy:

    • Post-pandemic economy has surprised everyone with its resilience.
    • Overall, the economic data shows a good picture so far.

Employment/Labor Market

  • Current Conditions:

    • The US economy has a very strong labor market.
    • The labor market is now as tight as it was before the pandemic.
    • Labor shortages persist in many industries.

  • Trends and Changes:

    • Signs of gradual cooling in the labor market with supply and demand getting into better balance.
    • Immigration is helping alleviate labor shortages.
    • Demand for workers and wages are cooling off substantially, indicating restrictive policy is effective.

Banking and Banking Risk

  • Current State:

    • US banking system overall is in good shape.
    • Largest banks are strong and well-capitalized.
    • Credit has been tight for some time.
    • Credit growth has been modest.

  • Nonbank Financial Firms:

    • Lending activities by nonbanks are growing very fast.
    • Fast growth in any sector raises financial stability concerns.
    • The Fed monitors the relationship between banks and non-bank financial firms closely.

Housing Market

  • Inflation Issues:
    • Housing inflation remains puzzling.
    • Current rent increases are not showing up in rollover leases as expected.
    • There are longer-than-expected lags between market rate declines and their appearance in leases.

Other Topics

  • US Fiscal Policy:

    • Noncontroversial to say that US fiscal policy is on an unsustainable path.

  • Fed's Independence:

    • There is strong support in Congress for an independent Fed.
    • This independence is broadly understood and supported.

  • Economic Data:

    • Overall, the economic data reflects a good picture for the US economy so far.