• Inflation was not just a question of demand overheating, but also involved a supply shock.
  • Needed to see an unwinding of the pandemic led distortions and the effects of tighter monetary policy
  • We think monetary policy is tight
  • There may be more supply-side gains to be had on inflation
  • Labor market is rebounding
  • Labor market has made substantial progress toward better balance.
  • Fed is still committed to getting inflation to 2% over time.
  • Because of origins of inflation, there was a path to getting inflation back down without the usual job losses. The reason is supply-side impact.

Market update: US yields have dipped to the downside. The 10 year yield is now negative on the day at 4.361%. The 2-year yield is down two basis points at 4.680%.

US stocks are moving higher with the S&P in the index now up 0.37%. The NASDAQ index is trading up 0.49%.

The US dollar is moving lower. The EURUSD is testing it 200 day moving out at 1.08323. Closing above that moving average would be more bullish. The GBPUSD is trading to a new session high and the highest level since March 28. It is approaching its 100-day moving average at 1.2657. The USDJPY is trading at 151.60 and approaches its 100-hour moving average at 151.498, and 200-hour moving average at 151.440.

  • I do think monetary policy is working
  • Economy rebalancing in interest sensitivity sectors such as housing
  • The supply-side recovery is creating new demand. It is also stimulating new supply and is why growth is increasing while inflation is moving lower.
  • Risk to cutting rates too soon as well as waiting too long
  • If cut too soon, the progress on inflation could stop and reverse
  • The other risk is if we wait too long and cut too slowly in which case we may have a weakening of the labor market
  • The risk of moving too soon would be really quite disruptive.

Stocks are coming off a bit on the last comments but still higher. S&P is up 10 points or 0.18%. NASDAQ is up 50 points or 0.31%

  • Price stability provides for long periods of strong employment.
  • Productivity growth in output per hour is hard to predict. The question is can we sustain the productivity growth grown forward
  • AI should increase productivity, but too soon to see productivity from AI at the moment.
  • Policy has gotten to a good place, neutral rate question is not a matter for today.

Powell Q&A ends at 12:56 PM ET. Overall, the Fed Chair remains calm, cool and collected. He did not specifically change the picture and he just does not know. What he did not do is explicitly express a view that rate projections are different. The market was calmed by that and the USD moved lower, yields moved higher and stocks moved higher as a result.

USD moved lower:

  • EURUSD moved briefly above its 200-day moving average at 1.0832. It currently trades at 1.0829. The price also moved above the 38.2% retracement of the move down from the March high to the March low at 1.08219. That is now a close risk level for traders in the short term. A move above the 200-day moving average would target the 50% of the March trading range at 1.08522
  • USDJPY moved lower but remains above its 100-hour moving average at 151.498 and 200-hour moving average at 151.44. The current price trades at 151.63.
  • GBPUSD moved to a new high for the day and week and highest level since last Thursday. The price remains below its 100-day moving average at 1.26589. The current price trades at 1.26448, after reaching a high for the day at 1.26505.

US yields moved lower. The 2 year is now negative. The 10 year is near unchanged:

  • 2-year yield 4.682%, -1.8 basis points
  • 5-year yield 4.3447, -0.8 basis points
  • 10-year yield 4.363%, -0.2 basis points
  • 30-year yield 4.5.6 percent, +0.7 basis points

US stocks are higher:

  • S&P index is up 18.66 points or 0.36%
  • NASDAQ index is up 82.58 points or 0.51%
  • Dow industrial average is up 67 points or 0.17%