Federal Reserve Chairman Jerome Powell struck many of his long running themes in response to questions from members of the Congressional Joint Economic Committee during his twice-yearly economic testimony.

He noted several times that the US economy was in a good place and that there was no reason that the benefits of 11 years of growth can’t continue.

"We are at levels of unemployment that we haven't seen in 50 years...There is no reason this expansion can't continue and there is a lot of value in it...income gains are highest at the lowest end of the wage scale."

US U-3 Unemployment Rate

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Mr. Powell defended the recent switch to a neutral policy stance after three straight 0.25% rate cuts.  

"We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook of moderate economic growth, a strong labor market, and inflation near ...our 2 percent objective," he said in his prepared statement.

Several legislators questioned him about the implications for Fed policy of criticism from President Trump who yesterday that the central bank should consider negative interest rates.

As he had in the past, for these are not the first critical comments from the President, Mr. Powell avoided direct rebuttal, noting that Federal Reserve policy is the product of data and analysis and not the result of political pressure.

"Politics plays absolutely no role in our decisions."

Long term problems for the US economy, particularly labor force participation and productivity are issues for fiscal policy not the Fed and monetary policy.

He called negative interest rates not something the governors are considering nor would they be appropriate for the current economy.

Mr. Powell's positive description of the US economy resonated with the markets. US equities saw a modest boost after the Chairman’s testimony as did the dollar.

 

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