I’ve listened to half a dozen Jay Powell speeches and read transcripts of many more, and it’s clear he thinks the Federal Reserve saved the economy, and he is determined to protect the expansion by any means necessary, including making “unconventional tools” part of the everyday options in his quiver of policy arrows.

Opening Remarks

Chair Jerome H. Powell

June 4, 2019

At the "Conference on Monetary Policy Strategy, Tools, and Communications Practices" sponsored by the Federal Reserve, Federal Reserve Bank of Chicago, Chicago, Illinois.

Good morning. I am very pleased to welcome you here today. This conference is part of a first-ever public review by the Federal Open Market Committee of our monetary policy strategy, tools, and communications. We have a distinguished group of experts from academics and other walks of life here to share perspectives on how monetary policy can best serve the public.

I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.

While central banks face a challenging environment today, those challenges are not entirely new. In fact, in 1999 the Federal Reserve System hosted a conference titled "Monetary Policy in a Low Inflation Environment." Conference participants discussed new challenges that were emerging after the then-recent victory over the Great Inflation.1 They focused on many questions posed by low inflation and, in particular, on what unconventional tools a central bank might use to support the economy if interest rates fell to what we now call the effective lower bound (ELB). Even though the Bank of Japan was grappling with the ELB as the conference met, the issue seemed remote for the United States.

The second question asks about the adequacy of the Fed's toolkit for providing stimulus when facing the ELB. In the United States, we used several different formulations of both forward guidance and large‑scale purchases of longer-term securities.13 While views differ on the effectiveness of these policies, with their use, the unemployment rate fell steadily and inflation expectations remained well anchored, outcomes that were favorable overall when viewed against the recoveries of many other advanced economies. My own view is that these policies provided meaningful support for demand, but that they should not be thought of as a perfect substitute for our traditional interest rate tool. In any case, we have a responsibility to thoroughly evaluate what mix of these tools is likely to work best when the next ELB episode arrives.

Perhaps it is time to retire the term "unconventional" when referring to tools that were used in the crisis. We know that tools like these are likely to be needed in some form in future ELB spells, which we hope will be rare. We now have a significant body of evidence regarding the effectiveness, costs, and risks of these tools, including those used by the FOMC and others tried elsewhere. Our plans must take advantage of this growing understanding as assessments are refined.

Message of Market

Technology is rocking lead by Xerox (XRX) but also a nice rebound in software and chip names. Financials are up big, which is counterintuitive of conventional wisdom that a wave of Fed rate cuts are about to begin. There is a nice bounce in Consumer Discretionary lead by retailers, which have come on strong in the last 24 hours even as Tiffany (TIF) climbed off the canvass after posting so-so results and lukewarm guidance.  I do believe the sector is oversold in general, however.

Sector Watch

Key Resistance

The market has been under so much pressure, it’s going to take more than this monster session to turn things around.  Key resistance points to add octane to the bounce:

• S&P 2,826
• Dow 25,877
• NASDAQ 7,785