Fed ’s Powell Is Asked Little, Responds Less

Federal Reserve Chairman Jerome Powell was before theSenate Banking Committee today to present the semiannualMonetary Policy Report to Congress. Unfortunately, there was little discussion of monetary policy during the proceedings.The Senators spent nearly all of their time asking the Chairman about the recent stress tests,changes to the tax code, and concerns over additional tariffs. On tariffs, Powell deserves credit for plainly stating that “in general, countries that have remained open to trade and haven’t erected barriers, including tariffs, have grown faster, have had higher incomes, [and] higher productivity, and countries that have…gone in a more protectionist direction have done worse.”While many Senators ignored monetary policy, the one notable exception came when Senator Pat Toomey asked whether the flattening yield curve on bonds would cause the Fed to adjust either its path for interest rates increases or the pace of its balance sheet reduction.A flattening yield curve means the difference, or spread, between short- and long-term bonds is narrowing. When short-term bond yields end up higher than those on long-term bonds, then the yield curve has inverted. The concern that Toomey ’s question points to is that, in the past, an inverted yield curve has typically signaleda coming recession.Rather than a direct response to what the flatter yield curve potentially means for normalizing monetary policy, Powell delivered his weakest answer of the day. He admitte...

Source: Cato-at-liberty - July 17, 2018 Category: American Health Authors: Tate Lacey Source Type: blogs