Jerome Powell, appearing before the Senate panel weighing his nomination to be Federal Reserve chairman, aligned himself with a more dovish wing of the U.S. central bank that believes the labor market can get even stronger without creating inflation worries.

President Donald Trump’s nominee said the current jobless rate of 4.1 percent is at or below many estimates of full employment, and then pointed to other measures that suggest remaining slack like historically low participation rates.

“There’s no sense of an overheating economy or a particularly tight labor market,” Powell said in response to a question from Senator Jack Reed, a Rhode Island Democrat. “There may be more slack, more people that can come back to work. I think we are looking at an economy that is going to go under 4 percent unemployment.”

His comments suggest he shares current Fed Chair Janet Yellen’s view that there are still pools of potential workers who can be drawn into the labor force, giving the Fed scope to continue its go-slow approach to raising interest rates.

Eoin Treacy's view

I believe it is safe to assume President Trump wants a strong economy and is more than happy to use procyclical policies to achieve it. Having a dove at the Fed is a big part of achieving his ambitions and Powell is very close to Yellen in his views. That suggests the Fed is less likely to compete with fiscal stimulus by raising rates aggressively under a Powell governorship.

The bond market was relatively unchanged today suggesting Powell’s responses were already well telegraphed. Meanwhile the stock market responded favourably to the news that the Republican Party’s tax bill made additional progress today.

The S&P500 extended the break above 2600 to hit a new high and a clear downward dynamic would be required to question medium-term scope for additional upside.