Fed chair paints a rosy picture but says risks remain
WASHINGTON — Jerome Powell, the Federal Reserve chair, painted an optimistic picture of the U.S. economy before Congress on Wednesday, though he warned that threats to the outlook persist.
“In particular, sluggish growth abroad and trade developments have weighed on the economy and pose ongoing risks,” Powell said during his prepared remarks.
The United States’ central bank has cut interest rates three times since late July, as tensions from President Donald Trump’s trade war and slowing growth abroad unnerved companies and weighed on investment. Lower borrowing costs have helped to cheapen mortgage costs and could keep consumers, the main engine of economic growth, spending.
But as investors increasingly expect trade tensions to ease and as the effects of the recent rate cuts play out, the Fed has indicated that it may shift to a wait-and-see mode as it tries to gauge whether further action is necessary. Powell upheld that message before lawmakers.
“We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook,” he reiterated.
Powell, who spoke before Congress’ Joint Economic Committee, indicated that the Fed is keeping an open mind about the possibility that the job market — which is performing well, with unemployment near its lowest level in 50 years — can continue chugging along as wage growth remains moderate and inflation muted.
“What we have learned — and what we continue to learn — is that the U.S. economy can operate at a much lower level of unemployment than many would have thought,” Powell said in response to lawmaker questions. “I’m very open to the idea that we don’t know where maximum employment precisely is.”
That statement speaks directly to the Fed’s key goals.
The central bank is tasked with maintaining both full employment and low and stable inflation. Officials had long believed that verylow joblessness would quickly push prices higher — an assumption that played a key role in their decision to lift interest rates nine times between the end of 2015 and the end of 2018. But the central bank is now reassessing that view as the job market continues to add workers but wages grow slowly and inflation remains well below the Fed’s 2 percent goal.
“The data are not sending any signal that the labor market is so hot, or that inflation is moving up, or anything like that,” he added, noting that the strong job market has many beneficial side effects, increasing lifting wages for lowerpaid workers.
That view could influence policy decisions in the coming months. If the Fed is more comfortable than it once was maintaining a seemingly tight labor market, that could keep it from rushing to raise rates out of fear that prices might take off.
Powell also used the appearance to emphasize the central bank’s freedom from the political process.
“Politics plays absolutely no role in our decisions,” Powell said. “We won’t make mistakes of character or integrity.”
The Fed’s independence been under strain over the past year, with Trump regularly attacking the Fed for not lowering borrowing costs quickly enough and blaming the central bank for any economic weakness.
On Tuesday, Trump once again criticized the Fed during a speech before the Economic Club of New York, accusing it of putting the United States at a competitive disadvantage to other nations.