There´s the “fiction” (or farce) & the fact

Both Yellen and Powell kicked-off their Congressional Testimony with the same “upbeat” views:

Yellen´s first 2/11/14

The economic recovery gained greater traction in the second half of last year. Real gross domestic product (GDP) is currently estimated to have risen at an average annual rate of more than 3-1/2 percent in the third and fourth quarters, up from a 1-3/4 percent pace in the first half…

Powell´s first 2/27/18

Inflation-adjusted gross domestic product rose at an annual rate of about 3 percent in the second half of 2017, 1 percentage point faster than its pace in the first half of the year…

They were just lucky to give their first testimony during an upswing. The panel shows that since the end of the Great Recession, the economy (as viewed from growth in real GDP) has oscillated within the 1% – 3% band most of the time. [Monthly GDP data from Macroeconomic Advisers]

The strongest “surge” was during 2013 – 2015. During 2015 – 2016, growth “fizzled” back to 1%. The ongoing “surge” is the weakest of the group, appearing to be petering out at just 2.5%.

Powell´s testimony was considered hawkish by the markets. Maybe this sentence had an impact:

In gauging the appropriate path for monetary policy over the next few years, the FOMC will continue to strike a balance between avoiding an overheated economy and bringing PCE price inflation to 2 percent on a sustained basis.

Either the word “continue” here is misplaced (because the Fed never said it was “striking a balance…”) or in Powell´s mind, conditions in the labor market define the state (“overheating”) of the economy.

In Yellen´s November 17 Testimony, she said:

We continue to expect that gradual increases in the federal funds rate will be appropriate to sustain a healthy labor market and stabilize inflation around the FOMC’s 2 percent objective. 

Where a “healthy labor market” is maybe one that does not “overheat” (i.e. increases price pressures). So, when Powell say´s “avoiding an overheated economy”, he´s saying he wants to keep unemployment from falling too far below “natural”.

In the end, the choice of words was important, giving the hawkish slant to the Testimony. Also, Powell may be even a more radical Phillips Curver than Yellen!

Bottom Line: To my mind, it was not a good start.


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