LIVE MARKETS-Fed's Powell to speak, but does it really matter?

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FED'S POWELL TO SPEAK, BUT DOES IT REALLY MATTER?

Investors are waiting with bated breath for Federal Reserve Chair Jerome Powell's speech on Friday, but Steven Blitz, chief U.S. economist at TS Lombard, thinks that what the Fed's top official says, while likely interesting, could be effectively pointless.

In a research note on the eve of Powell's speech at the Fed's gathering in Jackson Hole, Blitz says the Fed chair will focus on the central bank's new policy framework while the White House is set on restructuring the Fed – perhaps even putting it under the U.S. Treasury's umbrella.

"This leaves the new Fed framework with about a nine-month shelf-life, thus making any policy philosophy espoused by Powell interesting but ultimately irrelevant."

Blitz notes that by dictating monetary policy, Trump seemingly wants to transfer prime responsibility for inflation and growth to fiscal policy. He adds that payrolls are slowing, "stalled if one wants to be generous," while inflation has had a "structural break to the upside."

Because cyclical inflation lags employment, he points out that the risk implied by weakening payrolls is enough to give the Fed room to cut 25 basis points next month, even 50 bps if if August payrolls come in weak enough and July is downwardly revised, like in previous months.

Looking beyond upcoming cyclical turns, he says a return to low inflation is impossible without fiscal discipline and "this will be made explicitly evident once Trump dictates monetary policy beginning next May."

For now, Powell is still in charge, Blitz says, and he will not be outvoted regardless of the number of dissents.

"The FOMC is not a democracy, unlike the Supreme Court where the Chief Justice cannot dictate the outcome. Still, like any good chair of a committee, the Fed chair listens and works to build a consensus."

(Gertrude Chavez-Dreyfuss)

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