Fed chair suggests rate hikes may slow
WASHINGTON — Federal Reserve Board Chairman Jerome Powell on Wednesday suggested the central bank could be close to slowing down the pace of its recent interest rate increases, saying rates are now just slightly below what he considers a “neutral” level.
His comments marked a sharp change from his position last month, when he said the Fed still had a “long way” to go before it reached that equilibrium.
U.S. stock markets soared on Powell’s comments, as he appeared to signal that the Fed would not move forward aggressively to raise rates much further than it already has. The Dow Jones industrial average pushed up 617.70 points, an increase of 2.5 percent, a surge that erased its November losses and put it back in positive territory for 2018.
Still, by saying rates were slightly lower than the level he perceives as “neutral,” Powell’s statement appears to be suggesting at least one more interest rate increase is coming in the near future.
Powell’s comments appear to implicitly reject arguments from President Donald Trump that past interest rate increases have been a mistake. The chairman has repeatedly asserted the Fed’s independence, and there was no sign Wednesday’s suggestion the central bank may slow the pace of rate hikes is related to Trump’s criticisms.
“Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy, that is, neither speeding up nor slowing down growth,” Powell told the Economic Club of New York.
Powell said his Fed colleagues and many other economists “are forecasting continued solid growth, low unemployment and inflation near 2 percent.”
The Fed has already raised a key interest rate three times this year and is expected to raise the rate again next month.
Powell went out of his way to defend the Fed’s recent moves, and said “there is no preset policy path.”
“Our gradual pace of raising interest rates has been an exercise in balancing risks,” Powell said. “We know that moving too fast would risk shortening the expansion. We also know that moving too slowly — keeping interest rates too low for too long — could risk other distortions in the form of higher inflation or destabilizing financial imbalances. Our path of gradual increases has been designed to balance these two risks, both of which we must take seriously.”
Trump has unloaded criticism aimed at Powell in recent weeks, as the president has blamed the central bank chief for raising interest rates in a way that Trump says has unsettled the stock market. It is very unusual for a president to criticize the Fed, which is supposed to operate independent of politics.
“I’m not happy with the Fed,” Trump said Tuesday. “They’re making a mistake, because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.”
The Fed is tasked with maximizing employment and stabilizing prices. By controlling interest rates, it aims to prevent the econo- my from overheating in a way that eventually leads to a recession.
But knowing when to raise interest rates can be challenging, and people often have different opinions about how much running room the Fed should permit.
In response to questions after his speech, Powell noted recent stock market volatility but said the Fed was largely focused on slower-moving trends that tell him more about the health of the economy. He also described the Fed’s cautious approach toward raising interest rates as akin to being in a room with furniture when the lights go out and then having to proceed carefully to avoid bumping into anything.
The Fed report also notes that America’s banks are strongly capitalized, well poised to absorb the kind of shocks to the financial system that sent Wall Street into a tailspin in 2008.