Powell Q&A: We're not at the stage where bond rates need to be taken into policy

We've watched the run-up in bond rates and they're nowhere near a year ago. We will see where they settleWe've all read decompositions on why yields have moved up but we think they're about fewer downside risks and better growth (not inflation)We don't guess, speculate or assume on fiscal policyData has been stronger than expected in the inter-meeting periodSome of the downside risks have been taken awayOverall, we're feeling good about economic activityWe had one inflation report that wasn't as good as hopedWe will make a decision on rates in December when we get thereJobs report wasn't terrible but was worse than expectedThe latest economic data has been strongPolicy is still restrictive but we feel it is still restrictive and labor market has cooled a great deal and is essentially in balanceWe don't need further cooling to achieve our goalsPowell says there is no signal in the removal of the line about "gaining greater confidence"When we are at neutral, or close to neutral, we might slow the pace of rate cuts...something we are just beginning to think about This isn't a tight economy. A lot of the inflation we've seen this year has been catch-up inflationLabor market is continuing to very gradually cool, is in a good placeThe right way to find neutral is very carefullyWe don't think we need inflation to soften much to get inflation back to 2%Powell says if he was asked to resign he wouldn'tIt will take some years of real wage gains for people to feel better about pricesWe are going to move carefully as this goes on, to increase chances we'll get it rightWe don't know where neutral is but weOur baseline for next year is to gradually move rates towards neutralThe comment about the pace of rate cuts and getting back to neutral is dovish, that highlights a very high probability of a cut in December and continuing through 4% but it contrasts with the comment about moving carefully.I think Powell is referring to 5% rates last October but I certainly wouldn't say 10s are 'nowhere near' last year at this time. This article was written by Adam Button at www.forexlive.com.