(Reuters) - U.S. central bankers see a “sustained expansion” ahead for the country’s economy, with the full impact of recent interest rate cuts still to be felt and low unemployment boosting household spending, Federal Reserve Chair Jerome Powell said on Wednesday in remarks prepared for delivery to the Joint Economic Committee of Congress.
His comments tracked closely to those in his news conference last month after the Fed cut rates for the third time this year and signaled the central bank was likely done reducing borrowing costs absent a significant change in the economic outlook.
CHRIS ZACCARELLI, CHIEF INVESTMENT OFFICER, INDEPENDENT ADVISOR ALLIANCE, CHARLOTTE, NORTH CAROLINA
“Powell continues to be cautious. He has again justified why the Fed decided to cut rates three times. His concern is more about the uncertainty that the Trump trade policy is putting on business. And so they felt like it was important to provide some accommodation to the economy, just to give it room to grow in the absence of certainty on policy.”
“He’s doing his best to be as apolitical as possible….Part of what he’s doing with his comments, as well as what they’ve done in terms of cutting rates in advance this year, is really try to take them out of the picture for next year. It’s my expectation that the Fed is very loath to change rates next year during an election year. So for all of 2020, not only are they not likely to cut rates, but they’re also not likely to raise rates in the absence of something very dramatic.”
“I don’t believe what Powell said so far is new news to the market. The market continues to move on trade news or the lack thereof.”
ROBERT PHIPPS, DIRECTOR, PER STIRLING CAPITAL MANAGEMENT, AUSTIN, TEXAS
“All that (Powell) did was he reiterated the comments he made after the FOMC meeting….Basically, Powell confirmed today that the Fed is out of the picture. If you look at Fed funds futures, you don’t see a 50% chance of a Fed move until next summer. The market has priced in the fact that the Fed is now on the sidelines.”
“He did come out with a warning on the unsustainability of fiscal policy, which is a little bit of a new element. He’s very correct. We are running up a deficit and if interest rates do run higher, it will be difficult to service that debt without extraordinary measures.”
“We came in weak from the (stock) futures market. There was some sign of relief that Powell didn’t surprise, so we got some lift off of that.”
RICK MECKLER, PARTNER, CHERRY LANE INVESTMENTS, NEW VERNON, NEW JERSEY
“They’ve really made it a policy to continue to communicate to the public with a consistent party line. In this case it’s been that they plan to keep interest rates relatively low but are open to movement either way if there are material changes in the economic picture. That’s not surprising.”
“Investors will see it as slightly more hawkish but it’s to such a small degree I can’t see it impacting investment decisions. He’s been focused a little on why there isn’t a need for further cuts. Previously he seemed focused on why there was no need for increases.”
“I don’t think it’s surprising when they’ve cut rates 3 times that they’re not suggesting a fourth. Historically the Federal reserve has been there to lower rates in recessionary times and raise rates in times of strong growth. We seem to be right in the middle now.”
“The kind of rate cuts the President is talking about should be reserved for periods of crisis. The market doesn’t reflect a crisis. What investors see is an economy that’s not too hot and not too cold. The Fed seems to see it that way too so right now Fed and investor interests are aligned.”
“The two main things are the continued drag out of the agreement with China. There’s lots of talk out of the administration but it’s always just ahead of us. It’s definitely negative the impeachment process and the hearings even though I don’t think there’s any doubt Republicans in the Senate will support it. Just the process of doing it shows investors the government is relatively dysfunctional.”
TIM GHRISKEY, CHIEF INVESTMENT STRATEGIST, INVERNESS COUNSEL, NEW YORK
“Sobering testimony from Fed chairman Powell, highlighting the risks to the economy, both currently and perspective risks if the economic backdrop deteriorates.
“Such testimony is not unusual between Fed meetings and we’ll likely hear other speeches from other Fed governors over the coming weeks prior to the December 11 Fed meeting, about a month away. Fed governors generally speak their own mind and like any group they have mixed opinions about the state of the economy and about the stance the Fed should take in upcoming meeting. You generally always hear mixed messages by Fed governors just like you have mixed votes at the FOMC meetings.
“But Powell’s testimony sets the stage as to how the Fed is going to approach the next meeting. The Fed is paused with rate changes and appropriately cautious about risks in the economy and in the financial markets should economic conditions start to deteriorate.
“That was the messages coming out of the Fed meeting is well.
“Interestingly, long bonds are rallying because of this, almost exactly the opposite of what you’d expect.”
Compiled by Alden Bentley