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- Economy is very resilient, growing strongly
- Growth is running above its longer run trend. That is a surprise
- Economy is a story of stronger demand.
- May be ways economy is less affected by interest rates.
- Interest-sensitive spending is a showing impact of Fed policy.
- We see policy working through usual channels
- I don't think there is a fundamental shift in how rates affect economy.
- We are seeing a change in the exchange rate which is disinflationary
- The fact that we have a strong economy and job market, these are elements we want to see
- No precision in understanding monetary policy lags.
- Markets have been front running Fed policy changes.
- Household savings are higher, spending has been higher.
- We should be seeing effects of monetary policy arriving
- Fed has slowed on rates to give policy time to work.
- We have to use eyes and risk management to monitor monetary policy impact
- There is a lot of uncertainty on lags
- We are moving carefully with policy decisions.
- Long-run potential growth doesn't change much. It is around 2%
- It is very hard to know how economy can grow with higher rates
- Doesn't know where monetary policy will settle.
- Effective lower bound is not an issue for economy, monetary policy.
- By any reckoning, neutral rates ebbed over recent decades, unsure where it is now
At 12:33 PM ET. Dow industrial average -0.08%. NASDAQ index of -0.24%. 10 year yield 4.957% +5.6 basis points. 2 year yield 5.182% -3.6 basis points.
- Models useful but have to look at what the economy is telling us
- The evidence is not that policy is too tight
Stocks start to move lower after the last comment (NASDAQ down -0.56%). EURUSD moves back to the 200-hour moving average at 1.05636. 10-year yield 4.987% +8.8 basis points. 2 year yield 5.212% -0.4 basis points
- It's possible we are going into a more inflationary period, but it's hard to know
- Feds issue is trying to get policy right to bring inflation back to 2%.
- With hindsight possible Fed could have done less during pandemic
- Our economy is doing very well.
- We were in a time of disinflation. That period is over. We are now more in a balanced period.
- The possible range of events is now so much wider
On the bond yield rise
- Bond yields analysis needs humility
- Bond yields are not about expectations of higher inflation, monetary policy review
- Bond yields rise driven by term premiums
- Markets are seeing economic resilience and revising views
- Markets may be responding to deficits, Fed balance sheet actions
- Bond yield rise is tightening financial conditions
- Bond yield rise is not principally about expectations of Fed doing more
- Bond yield rise doesn't seem to be about expectations of Fed doing more on rates
- Is unclear if bond yield rise will be persistent, markets are volatile.
- We will let market yield rise play out, Fed will watch it.
- For now it's clearly a tightening of financial conditions
- Markets have been volatile
On fiscal front:
- We know fiscal path is ultimately unsustainable.
- Current fiscal situation does not affect fed near-term policy choices.
- Overseas treasury buying has remained robust
On the real economy:
- Business contacts saying economy remains strong
- Cost of capital could be issue for small companies
- Fed policy is blunt, but it's what the Fed has to tackle inflation
- we know Fed actions are having a negative impact on parts of the economy.
- Fed must get back to price stability
- The world count on us to have lower and stable inflation
- Fed independence is for time when policy choices are tough.
12:50 PM ET:Stocks have stabilized and trade above and below unchanged. 2 year yield 5.188% -3 basis points. 10 year yield 4.974% +7.3 basis points.
- Higher bond yields are producing tighter financial conditions which the Fed wants
- Higher bond yields is a tightening, and at margin could reduce the need for Fed to tighten.
- At margin higher yields take some pressure off Fed to raise rates.
On the labor market
- A whole lot of people left the labor market and didn't come back after the pandemic
- There are many signs labor market getting back into balance
- Labor market is gradually cooling by so many measures
- There is been new labor market supply
- It's still a very tight labor market, but it's getting looser.
- Labor force increases, and immigration increases is being seen in the labor markets.
- I don't think most of inflation is from job market (Phillips curve), was demand driven.
On the banking system
- Things have settled down on the banking front
- Paid a lot of attention to banks that appear to have issues.
- Bank stress has really settled down, Fed is still watching for trouble
- Banks are strong, and well-capitalized.
- Banks are much better at managing risk compared to the past
- Banks in the US are generally well-capitalized and strong.
On commercial real estate and more on banking risks:
- Work from home is affecting downtown real estate and a lot of big cities
- Commercial real estate is not a big risk for biggest banks. It is a bigger risk for smaller banks.
- Doesn't see systematic risk from commercial real estate problems.
- Bank regulators are working with banks that have concentrations of risk in commercial real estate.
- Regional banks are very important. Mega banks are in very good position
- Regional bank business model under pressure, Fed doesn't want to add to that pressure.
- Fed strongly thinks smaller banks are very important.
Q&A ends at 1 PM ET:
- NASDAQ up 0.16%
- S&P index up 0.22%
- Dow industrial average up 0.31%
- 2 year yield 5.175% -4.2 basis points
- 10 year yield 4.957% +5.6 basis points (the yield reached a high of 4.996%)
- 30 year yield 5.06% +6.9 basis points
- 2-10 year spread is now near -21 basis points
In the Forex:
- EURUSD. After a dip below the 200 hour MA at 1.0564 on prepared remarks, the price was able to stay above that level with up-and-down volatility. The price reached up to the high of the swing area near 1.0616. The current price is trading at 1.0596.
![EURUSD](https://images.forexlive.com/images/EURUSD_id_09c8501c-934f-41f1-9894-441fa1e6bf1a_original.jpg)
Fed hike probability:
- Under 4% of November hike
- 35% for a December hike