The Fed chairman says the relationship between inflation and unemployment is gone

Marco Green
July 12, 2019

Higher open likely for the U.S markets Thursday after Fed chief Jerome Powell's testimony seemingly lifted markets with expectations on a rate cut.

While the U.S. economy has performed "reasonably well" this year, "crosscurrents, such as trade tensions and concerns about global growth, have been weighing on economic activity and the outlook", Fed Chair Jerome Powell said in prepared remarks ahead of his two-day testimony before Congress. "He has provided a loser monetary policy base for gold prices gain further", said Howie Lee, an economist at OCBC Bank.

Fed Unsure What to Do About Facebook's Crypto TokenFed Chair Powell said that Facebook's crypto project raises "many concerns".

The S&P 500 is up a modest 0.1%.

In June, core inflation was pushed up by higher rents and a 1.6 percent jump in used auto and truck prices, which followed four straight months of decline. SHFE copper advanced 0.13%, tin increased 0.27%, lead went up 0.09%, nickel expanded 0.69%, while zinc dipped 0.44%, and aluminum fell 0.72%.

Federal Reserve officials in fact marked down their estimate of the longer-run policy rate to 2.5 per cent in June, from 2.8 per cent in March.

But the overall CPI edged up 0.1% last month, held back by cheaper gasoline and food prices, matching May's rise.

MSCI›s gauge of global stocks rose 0.26%, however, boosted by the advance in USA shares and earlier gains in Asian stocks.

Inflation data may continue to attract attention on Friday, as the Labor Department is scheduled to release its report on producer prices in June. The core PCE price index increased 1.5% year-on-year in May and has undershot its target this year. Apparel, which has been volatile in recent months, rose 1.1% on the month, while dropping 1.3% annually.

"The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago. and has gone away", Powell said Thursday during his testimony before the Senate Banking Committee.

The Fed's preferred inflation measure - the core personal consumption expenditures price index - has undershot its 2% target this year.

"I am not seeing the storm clouds actually generate a storm yet", said Bostic, who described himself as skeptical of the need to cut interest rates right now.

"I think we're learning all of those things", he said. He is often quoted in leading print and online publications such as the Wall Street Journal and the Washington Post.

Under questioning from committee Chair Maxine Waters, Powell said he would rebuff any demand from Trump that he resign.

Costlier package holidays accounted for CPI gains in June, which rose by 6.1% following a 9% drop in the month before, influenced by the late Whitsun holiday this year.

"The labor market has not weakened in a meaningful way since the escalations in trade policy a few months ago", said Daniel Silver, an economist at JPMorgan in NY. Manufacturing is struggling, the trade deficit is widening again, consumer spending is rising moderately and the housing sector remains mired in a soft patch.

The Dow rose primarily on the White House killing its own rebate rule created to ease costly medications for those on Medicare by letting them receive rebates that drug makers now pay to insurers and middlemen. Rent of primary residence was up 0.4%.

Though the case for lowering borrowing costs isn't fully decided, reducing rates at this point would be similar to the Fed's efforts in the mid-1990s to nurse along a lengthy recovery rather than respond to a looming downturn. There were also increases in the costs of motor vehicle insurance, education, new vehicles and communication.

Food prices were unchanged, and gas prices fell 3.6 percent, the second straight sharp decline.

Other reports by Click Lancashire

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