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Powell: Labor force participation has been disappointing

Comments from Powell in the Q&A:

  • We are a long way for knowing what omicron will turn out to be
  • Omicron impact on the economy depends on how much it suppresses demand versus supply
  • Economy is strong enough for taper even with omicron
  • Given the strength of the economy it’s appropriate to taper , omicron doesn’t have much to do with that
  • Higher inflation and much faster progress on jobs is what made me decide on speeding up taper
  • If economy turns out not to be as strong, we will adapt policy accordingly
  • Inflation that we’ve got is not at all what we were looking for in our framework
  • The reality is that we don’t have strong labour force participation and may not for some time
  • I had thought that participation rate would significantly surge
  • I do think now that higher participation is going to take longer
  • With inflation so far above target, we can’t wait too long to get to maximum employment
  • The economy does not lack stimulus
  • There’s a broad expectation that bottlenecks will alleviate over the course of the next year
  • The risks of higher inflation expectations becoming entrenched has certainly increased; though I wouldn’t say it’s high
  • Asset valuations are somewhat elevated
  • Business default rates are very, very low
  • Household balance sheets are in great shape
  • Stablecoins are not currently properly regulated
  • Cryptocurrencies risky for consumers, but “I don’t see them as a financial stability concern.”
  • So far this inflation really has nothing to do with labor market tightness
  • This inflation is all about demand
  • At the beginning it looked like it could be a global depression so we threw a lot at it
  • My decision on taper had nothing to do with renomination
  • I decided to speed up taper 10 days before President Biden decided to renominate me

The US dollar has been sliding as risk trades pick up after the FOMC. The dip buyers are winning again.

Powell hasn’t delivered anything that’s dovish; I think this is just flows into risk assets. There was a fearful mood about omicron and a hawkish washout on the FOMC but something about Powell is giving the market confidence that he’s on the ball and that rates won’t shoot up.

I think the comment on inflation expectations is an important one. They’ve hit the panic button already but they could really get worried if those move up.

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