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Fed Chairman Powell: A Gentle Beginning, But What Lies Ahead?

Mar. 01, 2018 10:51 AM ET5 Comments
John M. Mason profile picture
John M. Mason


  • Jerome Powell experienced his first visit to the Congressional hallways as Fed Chair and came away from the experience without any beatings or scars.
  • The uncertainties that hang over discussions of future monetary policy seem to center around the major changes that have been made to the government's fiscal policy.
  • The velocity of money has declined significantly over the past nine years and this has contributed to modest economic growth and unexpectedly slow rates of inflation.
  • But, substantial liquidity exists within the banking system and the real unknown relates to the concern about whether or not the massive governmental stimulus might stir up the use of this liquidity.

New Federal Reserve Chairman Jerome Powell did his first performance in the role before Congress on Tuesday.

All indications are that he did just fine.

Here is the link to his prepared remarks. His position on the economy is pretty optimistic and his feeling is that inflation will move up to the Fed's targeted rate of 2.0 percent this year.

The basic takeaway from this session is that it is quite likely that we will see four increases in the Fed's policy rate of interest this year and not just three as originally signaled.

This optimism did impact the financial markets as interest rates rose and the stock market declined. But, that was just for Tuesday.

There were only two comments in Mr. Powell's presentation that drew my attention.

The first one is on the technical end of the spectrum and was interesting to me because it was about a new argument that I was not familiar with. Mr. Powell, when talking about the labor market, commented on the fact that the labor force participation rate had "remained roughly unchanged, on net, as it has for the past several years."

He argued that this steadiness was a good thing and "a sign of job market strength, given that retiring baby boomers are putting downward pressure on the participation rate." This was a good thing because of the changing demographics of the labor market.

The second comment he made - and, he made it twice in his prepared text - was that "fiscal policy is becoming more stimulative." Furthermore, he added, "foreign demand for U.S. exports is on a firmer trajectory."

This is good - while at the same time concerning. Good because these two factors add more demand into the economy, hopefully, creating faster economic growth. Concerning because of the impact the stimulus might have on

This article was written by

John M. Mason profile picture
John M. Mason writes on current monetary and financial events. He is the founder and CEO of New Finance, LLC. Dr. Mason has been President and CEO of two publicly traded financial institutions and the executive vice president and CFO of a third. He has also served as a special assistant to the secretary of the Department of Housing and Urban Development in Washington, D. C. and as a senior economist within the Federal Reserve System. He formerly was on the faculty of the Finance Department, Wharton School, the University of Pennsylvania and was a professor at Penn State University and taught in both the Management Division and the Engineering Division. Dr. Mason has served on the boards of venture capital funds and other private equity funds. He has worked with young entrepreneurs, especially within the urban environment, starting or running companies primarily connected with Information Technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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