- US economy continues to host a solid expansion
- Manufacturing slowdown from last year appears to be ending
- Labor market providing more jobs than new entrants to workforce
Federal Reserve Chairman Jerome Powell will testify before the House Committee on Financial Services in the Fed’s Semiannual Monetary Policy Report to Congress on Tuesday February 10th at 10:00am EST, 15:00 GMT and before the Senate Banking, Housing and Urban Affairs Committee on Wednesday February 11th at 10:00 EST 15:00 GMT.
The Federal Reserve will present its monetary policy review to Congress this week, observing that some of the risks that prompted three rate cuts last year had declined but that the economic ramifications of the health crisis in China has created new concerns.
“Downside risks to the U.S. outlook seem to have receded in the latter part of the year, as the conflicts over trade policy diminished somewhat, economic growth abroad showed signs of stabilizing, and financial conditions eased. More recently, possible spillovers from the effects of the coronavirus in China have presented a new risk to the outlook,” said the official report which is posted on the Fed website. “The likelihood of a recession occurring over the next year has fallen noticeably in recent months.”
Chairman Powell will deliver the report to Congress, testify and answer questions from legislators as mandated by law.
Federal Reserve governors have reasons to be pleased with the economy and the results of their 0.75% in rate reductions.
The economy grew at a 2.1% annualized rate in the second half and 2.3% for 12 months in the 11th year of expansion which is the longest on record.
American firms added 225,000 jobs in January. Job creation averaged 176,000 new positions per month in 2019, more than enough to provide work to the 125,000 to 150,000 entrants to the labor market and keep moderate upward pressure on wages. Average annual hourly earnings have increases at 3% or more for 18 straight months.
Non-Farm Payrolls
Unemployment rose slightly in January to 3.6% but the 3.5% rate in in September and November was a half-century low and African-American and Hispanic jobless level reached all-time record lows in the last six months. The labor force participation rate rose to 63.4% as more people joined the work force from unemployment.
While inflation continued to run below the Fed’s 2% target at 1.6% in the core PCE in December inflation expectations for businesses and consumers are stable.
Equities are buoyant with the Dow, S&P 500 and the Nasdaq reaching new records this year. Markets are betting that the US-China trade pact will spur growth in the world’s two largest economies and in turn globally.
Even the US manufacturing sector purchasing managers’ index which dropped into contraction in August from trade tensions with China and Boeing's problems with the 737 MAX jet, unexpectedly recovered in January and the new orders index there and for service sector moved higher last month.
ISM Manufacturing PMI
Last year’s decline in manufacturing raised fears that it could herald a general recession, but the Fed disagrees. “In general, a decline in manufacturing similar to that in 2019 would not be large enough to initiate a major downturn for the economy,” commented the policy report.
The policy report repeats the central bank judgement from the January FOMC statement that the level of the fed funds rate between 1.5% and 1.75% was “appropriate to support sustained expansion of economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2 percent objective.”
Items for note in Chairman Powell’s testimony
- The January FOMC statement and the Monetary Policy Report described US economic growth as “moderate.” A stronger characterization by the Chairman will redound to equities and the dollar.
- Mr. Powell will be circumspect on the coronavirus but questioning could excite the safe-haven trade to the dollar.
- Positive comment on the economic potential of the US-China trade pact will play to the US and the dollar
- Legislators will likely question the Chairman on the recent turmoil in the short-term funding markets and the steps the Fed has taken promote calm
The 71-page Monetary Policy Report was posted on the Federal Reserve website on Friday and can be found there.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
![EUR/USD stays below 1.1100, looks to post weekly losses](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/EURUSD/european-euro-coin-on-top-of-american-dollar-bill-11292130_XtraSmall.jpg)
EUR/USD stays below 1.1100, looks to post weekly losses
EUR/USD continues to trade in a narrow range below 1.1100 and remains on track to end the week in negative territory. Earlier in the day, monthly PCE inflation data from the US came in line with the market expectation, failing to trigger a reaction.
![GBP/USD struggles to find a foothold, trades near 1.3150](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/GBPUSD/iStock-157771037_XtraSmall.jpg)
GBP/USD struggles to find a foothold, trades near 1.3150
GBP/USD stays on the back foot and trades in negative territory at around 1.3150 on Friday. The US Dollar holds its ground following the July PCE inflation data and doesn't allow the pair to stage a rebound heading into the weekend.
![Gold retreats toward $2,500 ahead of the weekend](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-bars-50657756_XtraSmall.jpg)
Gold retreats toward $2,500 ahead of the weekend
Gold stays under modest bearish pressure and declines toward $2,500 in the American session on Friday. The 10-year US Treasury bond yield edges higher toward 3.9% after US PCE inflation data, causing XAU/USD to stretch lower.
![Week ahead – Investors brace for NFP amid Fed rate cut speculation](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/Employment/NFP/america-back-to-work-gm178972493-25143312_XtraSmall.jpg)
Week ahead – Investors brace for NFP amid Fed rate cut speculation
Here comes another NFP week, with investors eagerly awaiting the results as they try to discern the size and pace of the Fed’s forthcoming rate cuts. The weaker than expected July numbers triggered market turbulence, instilling fears about a potential recession in the US.
![Easing Eurozone inflation to back an ECB rate cut in September](https://editorial.fxstreet.com/images/Macroeconomics/Countries/Europe/Eurozone_countries/Eurozone/eu-flags-flying-at-the-european-commission-building-brussels-belgium-24759579_XtraSmall.jpg)
Easing Eurozone inflation to back an ECB rate cut in September Premium
Eurostat will publish the preliminary estimate of the August Eurozone Harmonized Index of Consumer Prices on Friday, and the anticipated outcome will back up the case for another European Central Bank interest rate cut when policymakers meet in September.
![Moneta Markets review 2024: All you need to know](https://editorial.fxstreet.com/images/IT/Testing/Review/FXSBadgeCertifiedBackg_XtraSmall.png)
Moneta Markets review 2024: All you need to know
VERIFIED In this review, the FXStreet team provides an independent and thorough analysis based on direct testing and real experiences with Moneta Markets – an excellent broker for novice to intermediate forex traders who want to broaden their knowledge base.