Powell touts strength, Bullard warns of downside risks

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In his second day of testimony before Congress, Federal Reserve Board Chair Jerome Powell again touted the strength of the economy, calling it “the star economy.”

Although he said nothing new, Powell projected “continued moderate growth” in the U.S. economy and said he doesn't see “elevated” risks of recession.

The expansion is "sustainable,’’ he said, with no “warning signs that appeared in other cycles.’’

Meanwhile, Federal Reserve Bank of St. Louis President James Bullard said downside risks may result in a sharper-than-expected slowdown, which in turn would make it harder for the Federal Open Market Committee (FOMC) to meet its 2% inflation goal.

“The key risk is that this slowing may be sharper than anticipated,” Bullard said, according to text released by the Fed. “It remains possible that a sharper-than-expected slowdown could materialize in the quarters ahead.”

But, he added, the recent rate cuts “may help facilitate somewhat faster growth in 2020 than what might otherwise occur.”

Although the producer price index jumped 0.4% in October on higher energy costs, according to the Labor Department, the year-over-year rise was a modest 1.1%. The core rate rose 0.3% and 1.6% year-over-year, below the Fed’s 2% target.

In September, PPI fell 0.3% as did the core.

Economists polled by IFR Markets expected a 0.3% rise in the headline number and 0.2% in the core figure for the month and 0.9% and 1.6% gains year-over-year.

“Producer prices are up 1.1% from a year ago and have mostly decelerated since reaching 2.4% in April 2019,” said Scott Anderson, chief economist at Bank of the West. “Despite the modest increase in producer prices, the Fed is likely on hold for the remainder of the year.”

Jobless claims
Initial jobless claims rose 14,000 to 225,000 in the week ended Nov. 9, Labor said, while continuing claims slid to 1.683 million in the week ended Nov. 2 from 1.693 million in the previous week.

The rise may have resulted from numbers being estimated as a result of the Veterans Day holiday.

Illinois, Colorado and Pennsylvania posted large increases in claims in the week.

Economists expected 215,000 initial claims and 1.688 million continuing claims.

“This increase in claims and benign inflation report supports our forecast for the Fed to leave the fed funds rate unchanged for the balance of 2019 as it assesses the impact of the three rate cuts earlier this year on economic growth and inflation,” Anderson said.

He noted, “The futures market probability of a Fed rate cut by March is 40.1%, up from 35.4% on Wednesday.”

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Monetary policy Economic indicators Jobless claims Jerome Powell James Bullard Federal Reserve Federal Reserve Bank of St. Louis FOMC