El-Erian Interprets Powell’s Testimony

The markets parsed Powell comments to discern whether the Fed would stick to three rate hikes this year or opt for four.

The new Fed Chairman held a wide-ranging discussion with lawmakers on the House Financial Services Committee on Tuesday.  Federal Reserve Chairman Jerome Powell painted a relatively optimistic picture of the U.S. economy.  In addition, he pointed to balancing risks to the “strong” outlook.

Most important, he dampened concerns about negative spillover effects to the economy from the recent spike in market volatility.  And he reiterated prior policy guidance for a further “gradual increase” in policy interest rates.  Finally, he signaled his commitment to “cognitive diversity” to enhance good decision-making.

Powell observed that accelerating U.S. expansion is occurring in the context of a “moment of global growth.”  Headwinds have shifted to tailwinds.  This is reinforcing the domestic pro-growth impact of favorable consumption and business investment.  These conditions are a result  of stronger sentiment and sales, and more stimulative fiscal policy.

Read more.