Fed's Monetary Policy Report didn't really contain any surprises
Fed's Monetary Policy Report didn't really contain any surprises. The report noted further gradual rate hikes are consistent with the FOMC's dual mandate. The labor market remains strong, while hourly pay gains remain moderate. Inflation is expected to continue higher. Fiscal policy is likely to give GDP a moderate boost this year. Financial conditions have been supportive too, with systems more stable and resilient than before the financial crisis. There are global risks from trade tensions, with major emerging markets vulnerable. Valuations are still elevated for a variety of assets. Vulnerabilities from leverage in the financial sector look low, however. The EFFR/IOER spread is likely to narrow amid ongoing balance sheet adjustment. And so far it doesn't appear the Treasury or MBS markets have been disrupted by normalization. Fed Chairman Powell will present his testimony to the Senate Banking Committee on Tuesday at 10 ET.