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US corporate investment may be coming out of the doldrums, Fed's Quarles says
Corporate investment may finally be coming out of the doldrums, a top US central bank official said, sticking to the monetary authority's mantra that policy should continue to be gradually "normalised" given job market strength and the "likely only temporary" softness of inflation.
Speaking at a conference in Tokyo, the Federal Reserve's newly-appointed Governor, Randal Quarles, said America's economy was in the best shape since the Great Financial Crisis and, on multiple metrics, since well before.
Echoing other observers, he pointed to recent upbeat survey readings on corporate confidence and the fact that investment in capital equipment accelerated in 2017 to its fastest clip since 2011, accelerating through the year to a double-digit rate in the second half.
"It might be early, but it is possible that the investment drought that has afflicted the U.S. economy for the past five years may finally be breaking."
Linked to the above, he also held out the possibility that the White House's tax and fiscal packages might - possibly - boost the potential rate of growth of the economy by enticing firms to invest and stoking a higher rate of labour force participation.
Two days before, the National Federation of Independent Business gauge of small business optimism increased by two basis points to 106.9.
That record high prompted NFIB president Juanita Duggan to say: "Small business owners are not only reporting better profits, but they're also ready to grow and expand.
"The record level of enthusiasm for expansion follows a year of record-breaking optimism among small businesses."
On the inflation front, Quarles said he was not bothered by the fact that prices (measured through the headline rate of PCE deflation) were still below the Fed's 2.0% target level.
"After assessing the recent data, my take is that the current shortfall in inflation from target as most likely due to transitory factors that will fade through 2018, pushing inflation back up to target.
"Suffice to say, a deviation from our target of a few tenths of 1 percentage point, especially one I expect to fade, does not cause me great concern," he said.
The rate-setter, one of seven governors on the Fed board, also indicated it was now the "eminently natural and expected" time to evaluate and improve the post-crisis regulatory regime put in place.
Back on the subject of the economy, he expressed bewilderment at the drop see in labour productivity since the crisis, saying it "defied explanation" - but was nonetheless vitally important that it improve.