2018/02/27 Commentary: Powell Testimony… Shocker??!
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Commentary: Tuesday, February 27, 2018
Powell Testimony… Shocker??!
Well, in fact, not really. Some folks, who might have been convinced by others at the Fed it was going to remain very ‘gradualist’ in its approach to raising the federal funds rate this year, might have been shocked. And the specific grounds for that was probably the key term new Federal Reserve Chairman Powell used in the penultimate paragraph of his prepared remarks (our mark-up) at his inaugural semi-annual testimony appearance in front of House of Representatives Financial Services Committee: “overheated.” Keep in mind that his prepared remarks are a very highly compressed five page derivative of last Friday’s 63-page Federal Reserve System Monetary Policy Report to Congress. As such, Powell’s testimony opening statement had to summarize reams of analysis and graphs from that far more extensive full report. Yet he still felt it important to mention that US economic strength was verging on a phase where overheating might at least be possible.
As usual there were some who had become so comfortable with the notion that the Fed was (and would remain) so constrained by the lack of inflation that it would be forced to continue only very cautious rate rises. And going back into the period from early 2015 through mid-2016 we had that view as well. All of the Fed’s hawkish talk in that phase was little more than a self-serving (as we put it) ‘normalcy bias’ rather than a return to real normalcy. But things changed into the November 2016 election and beyond.
As we have already reviewed all of that at length in quite a few posts, suffice to say for now the overall confluence of factors (especially the regulatory regime and tax policy) has reinvigorated American business in ways not seen since before the 2008-2009 Crisis. And where this all comes together is in the renewed sustained improvement in Velocity of the US Monetary Base. We both noted that, and provided an early link out to the long term (96 year) chart in our February 11th Weekend: The ‘Demand-Pull’ Bond Bear post. It is now important enough that we have included it below in this post.
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