Fed chairman optimistic
WASHINGTON: Federal Reserve chairman Jerome Powell said yesterday he sees the United States on track for more years of steady growth, but was challenged in a congressional hearing by senators worried the Trump Administration’s trade policies were already damaging businesses in their districts.
Mr Powell, in written testimony to the Senate Banking Committee and in his response to questions about a possible ‘‘trade war’’, largely discounted the risks and said there would be a good outcome if the Administration’s bargaining produced a world of lower tariffs.
But North Dakota Democrat Heidi Heitkamp said she was becoming frustrated with the idea of ‘‘shortterm pain for longterm gain’’, noting that the energy sector in her state already had been hit by higher steel prices because of import tariffs, and farmers were worried about permanently losing market share because of retaliatory levies imposed on their goods.
‘‘We cannot afford to put our head in the sand’’ about the impact, Ms Heitkamp said. ‘‘We are going to look back at this time perhaps in a year and say that is the point we turned the corner and the economy started taking a downturn.’’
While Mr Powell steered clear of direct criticism of President Donald Trump’s slapping of tariffs on goods, particularly from China but also from US allies in Europe and elsewhere, he acknowledged that tariffs were ‘‘absolutely’’ the wrong approach and said the United States ‘‘would feel it at the national level’’ if levies remained in place for too long.
The Fed’s regional bank presi dents have increasingly cited local business concerns about the Administration’s trade tactics, with higher input costs and uncertainty over the future offsetting the recent corporate tax cut and pushing firms to reconsider or delay investment plans.
The back and forth over trade was a chief point of friction in a Fed appearance that also saw Democrats challenge recent Fed decisions that seem to take a lighter hand in the oversight of major banks, while, in contrast, one Republican said the current positive economy and Mr Powell’s presence at the Fed had made the central bank ‘‘boring’’ to oversee.
For Mr Powell, his testimony marked one of the strongest affirmations yet by a Fed leader that the central bank is within reach of its policy targets after years of struggling to recover from a deep financial crisis and recession.
‘‘With appropriate monetary policy, the job market will remain strong and inflation will stay near 2% over the next several years,’’ Mr Powell said in prepared remarks.
The Fed ‘‘believes that — for now — the best way forward is to keep gradually raising the federal funds rate’’ in a way that keeps pace with a strengthening economy but does not increase rates so high or so fast that it weakens growth, Mr Powell said.
US stocks rose on Mr Powell’s upbeat comments, while bond prices fell and the dollar rose. But analysts said there was little surprise in the chairman’s message.
‘‘His takeaway was the job market is strong, inflation is going to stay near 2%. To me that means two more hikes this year,’’ said Peter Cecchini, chief market strategist at Cantor Fitzgerald in New York.
Mr Powell did not offer his individual views on the appropriate pace of tightening or whether he thinks that the Fed should pause its rate hike cycle sometime next year if inflation remains under control. But markets expect the central bank to raise rates two more times this year from the current target level of between 1.75 and 2%.
Mr Powell will appear before a House committee today.
With unemployment at 4%, Fed officials broadly feel they have met their mandate for ‘‘maximum employment.’’ To the extent wages are not growing as fast as might be expected, Mr Powell said continued low unemployment could help, but urged lawmakers to think about longerterm policies such as improved education that will ultimately drive outcomes for workers.
While he and other Fed officials have declined to declare a full ‘‘victory’’ over the Fed’s other mandate of 2% inflation, Mr Powell said that marker was ‘‘close.’’
The Fed’s preferred measure of inflation hit 2.3% in May, and was right at 2% after excluding more volatile food and energy prices.
‘‘The recent data are encouraging,’’ Mr Powell said as he laid out the reasons why he felt the United States’ near decadelong expansion was set to continue.
Stilllow interest rates, a stable financial system, ongoing global growth and the boost from recent tax cuts and increased federal spending ‘‘continue to support the expansion,’’ he told the panel. — Reuters