Morning Report: Jerome Powell discusses the Fed’s thinking

Vital Statistics:


Last Change
S&P futures 2933.25 11.25
Oil (WTI) 58.88 1.05
10 year government bond yield 2.02%
30 year fixed rate mortgage 4.02%


Stocks are higher on positive news on the the trade front. Bonds and MBS are flat.


Durable goods orders came in lower than expected in May, and April was revised downward. The headline number fell 1.3% and the prior month was revised downward from -2.1% to -2.8%. Ex transportation, durable goods orders rose 0.3%. Capital Goods rose 0.4%, which is one bright spot in the report.


Mortgage applications rose 1.3% last week as purchases fell about a percent but refinances rose 3.2%. The 30 year fixed rate mortgage fell 8 basis points to 4.06%.


Jerome Powell spoke in NY yesterday and addressed some of the issues the Fed is dealing with.

Let me turn now from the longer-term issues that are the focus of the review to the nearer-term outlook for the economy and for monetary policy. So far this year, the economy has performed reasonably well. Solid fundamentals are supporting continued growth and strong job creation, keeping the unemployment rate near historic lows. Although inflation has been running somewhat below our symmetric 2 percent objective, we have expected it to pick up, supported by solid growth and a strong job market. Along with this favorable picture, we have been mindful of some ongoing crosscurrents, including trade developments and concerns about global growth. When the FOMC met at the start of May, tentative evidence suggested these crosscurrents were moderating, and we saw no strong case for adjusting our policy rate.

Since then, the picture has changed. The crosscurrents have reemerged, with apparent progress on trade turning to greater uncertainty and with incoming data raising renewed concerns about the strength of the global economy. Our contacts in business and agriculture report heightened concerns over trade developments. These concerns may have contributed to the drop in business confidence in some recent surveys and may be starting to show through to incoming data. For example, the limited available evidence we have suggests that investment by businesses has slowed from the pace earlier in the year.

Against the backdrop of heightened uncertainties, the baseline outlook of my FOMC colleagues, like that of many other forecasters, remains favorable, with unemployment remaining near historic lows. Inflation is expected to return to 2 percent over time, but at a somewhat slower pace than we foresaw earlier in the year. However, the risks to this favorable baseline outlook appear to have grown.

Last week, my FOMC colleagues and I held our regular meeting to assess the stance of monetary policy. We did not change the setting for our main policy tool, the target range for the federal funds rate, but we did make significant changes in our policy statement. Since the beginning of the year, we had been taking a patient stance toward assessing the need for any policy change. We now state that the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

The question my colleagues and I are grappling with is whether these uncertainties will continue to weigh on the outlook and thus call for additional policy accommodation. Many FOMC participants judge that the case for somewhat more accommodative policy has strengthened. But we are also mindful that monetary policy should not overreact to any individual data point or short-term swing in sentiment. Doing so would risk adding even more uncertainty to the outlook. We will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion.

The Fed Funds futures turned slightly less accomodative after the speech. They are now looking at something like a 70% chance of a rate cut at the July meeting, and the markets are coalescing around 75 basis points in cuts this year.

fed funds futures


The Trump Administration established a White House Council on Eliminating Barriers to Affordable Housing which will focus on removing burdensome regulatory barriers. The council will work to identify federal, state, and local barriers to affordable housing, and will take action to remove federal and administrative regulatory burdens. Note there is no mention of taking action to remove “state and local regulatory burdens,” which is often zoning restrictions. The Obama HUD aggressively sued local jurisdictions to force them to change their zoning laws from single family only to multi-family, but it looks like the Trump Administration won’t be going down that route.

4 Responses

  1. Kisor v. Wilkie

    Click to access 18-15_9p6b.pdf

    In a [sort of] unanimous opinion [they all agree in the judgment so it goes down as 9-0] deference survives but gets very narrowed. I think the narrowing is good, and on first reading, maybe good enough. Kagan’s opinion as to Parts I, II-B, II-B, and IV, Roberts concurs in part, Gorsuch concurs in judgment with Thomas and Kavanaugh as to Parts I, II, III, IV, and V and Alito as to Parts I, II, and III. Kavanaugh concurs in judgment with Alito. Auer/Seminole Rock deference survives but a set of limits is now described. Roberts writes to say Kagan and Gorsuch are not far apart and that Chevron deference is not implicated here. Gorsuch’s concurrence reads like a dissent to me; I quote:

    “[Auer] creates a ‘systematic judicial bias in favor of the federal government, the most powerful of parties, and against everyone else.’ Nor is Auer’s biased rule the product of some congressional mandate we are powerless to correct: This Court invented it, almost by accident and without any meaningful effort to reconcile it with the Administrative Procedure Act or the Constitution. A legion of academics,lower court judges, and Members of this Court—even Auer’s author—has called on us to abandon Auer. Yet today a bare majority flinches, and Auer lives on.”

    However,he is willing to see if this ruling sufficiently “neuters” Auer to go along with it.

    As I wrote above, on first reading I think this does work. Deference will be limited so sharply that the Federal Courts will feel free to examine whether an administrative ruling actually complies with statutory authority, which should raise a caution flag for the agencies.

    I know that my disagreement with deference is nowhere near as deep as Scott’s. I take his position to be that Congress never should have authorized administrative agencies to begin with, and should directly oversee any area of commerce they want to within the scope of the Commerce clause, without delegating regulating authority to unelected officials. My view is that delegation is constitutional so long as the APA is strictly adhered to and the agencies actually follow the congressional mandates. This judgment should help greatly in that regard.


    • Mark:

      I take his position to be that Congress never should have authorized administrative agencies to begin with…

      This article from Kevin Williamson pretty much captures my thoughts.

      Congress always has been full of grifters, bush-league demagogues, and mediocrities who were too slow-witted to practice law and too lazy to sell real estate, but there was a time when it did its job, too. The legislature must write the laws and see to the overall business of lawmaking. Our current legislators have abandoned regular order and instead lurch from crisis to crisis and artificial emergency to artificial emergency, steadily ceding power to the power-hungry presidency and to the bureaucracies reporting to it. There is a case — and it is not merely rhetorical — that the American people no longer live under a government of laws of their own making. The business end of the federal law that most Americans deal with is the work of bureaucrats, not the work of lawmakers.

      Justice Kagan may start to hear it, but there are more than a few Americans — mostly conservatives — who believe that a great deal of what we currently call government is in fact unconstitutional, who believe that what the Constitution establishes is a limited federal government of enumerated powers rather than a Napoleonic bureaucracy, and that substantive measures are needed to achieve at least a partial restoration of that constitutional order. At Slate, Mark Joseph Stern writes that Justice Gorsuch et al. are working toward a constitutional doctrine that would “dismantle landmark statutes protecting the environment, consumers, and employees,” which is only partly correct. The question of regulating air quality is separate from the question of whether the Clean Air Act is a well-constructed law that accords with our Constitution. To the political mind, the point is the “landmark statute.” But the point is clean air, honesty in business, safe workplaces, etc. The “landmark statutes” that may have to be revisited if Congress’s powers of delegation are brought more into line with the Constitution are not proper objects of veneration, even if strange and naïve cults have grown up around them. It is possible to believe that there should be workplace-safety regulations but not these workplace-safety regulations, generated in this way, enforced thus, etc.

      Which is to say, what conservatives want is the rule of law, rather than imperial bureaucracy. That is not too much to ask out of Congress. It is not too much to ask out of the Supreme Court, either.


  2. Good read:

    “Joe Biden will never give up on the system

    Because it never gave up on him.
    By Ezra Klein
    Jun 26, 2019, 9:00am EDT”


    • The Senator who was invited to speak at the funerals of Strom Thurmond, Ernest Hollings, Ted Kennedy, and John McCain because he was able to actually befriend people who were different than he was will get crucified by the left for his apostasy. Probably Ted Kennedy would never pass muster with this group of holier than thou purists, as well.


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