Federal Reserve will keep raising rates when it’s right, Powell says
WASHINGTON — Federal Reserve Chairman Jerome H. Powell is under pressure from President Trump and investors to slow interest-rate hikes, but that pressure doesn’t seem to be swaying him. In a speech Wednesday, he noted that rates remain historically low and reiterated that the central bank will continue raising them when and only when the data show it should.
Powell was mostly upbeat about the U.S. economy, forecasting “continued solid growth, low unemployment” and inflation near the Fed’s 2 percent annual target in his eagerly anticipated speech to the Economic Club of New York.
“There is a great deal to like about this outlook. But we know that things often turn out to be quite different from even the most careful forecasts,” Powell said, adding — as he and other Fed officials often have — that “there is no preset policy path.”
"We will be paying very close attention to what incoming economic and financial data are telling us,” Powell said.
His comments calmed investors who have been jittery about the prospect of continued interest rate hikes, sending major U.S. stock indexes sharply higher.
Investors appeared to react to Powell saying that the Fed’s short-term interest rate is “just below” the socalled neutral range in which the level isn’t speeding up growth or slowing it down. In early October, Powell had said the rate was “a long way” from neutral.
But Powell’s comments Wednesday were more subtle. In this speech, he said the rate was “just below the broad range of estimates of the level that would be neutral for the economy.” That range is between 2.5 percent and 3.5 percent, so he wasn’t necessarily saying that the Fed was close to ending its rate hikes.
Powell also pointed to some concerns about overall financial stability, including the Fed’s own efforts to slowly bring interest rates up to a more normal level after years of keeping them at an unprecedented low level to stimulate the economy during and after the Great Recession.
Other risks include “the unsettled state of trade negotiations” — a reference largely to the U.S.-China trade war — the Brexit negotiations in Europe, high corporate debt loads and some overvalued stocks.
But his concerns about stocks did not rise to the level of thinking there’s a dangerous bubble.
“From the financial stability perspective ... today we do not see dangerous excesses in the stock market,” Powell said.
Trump this week continued his extraordinary public criticism of the Fed. He said he was “not even a little bit happy” with Powell, who took over as chair of the central bank in February after Trump nominated him to replace Janet L. Yellen.
Trump blamed the Fed for recent stock market declines and for General Motors’ decision to lay off workers and close five North American factories, including assembly plants in Ohio, Michigan and Maryland.
“I’m doing deals, and I’m not being accommodated by the Fed,” Trump told the Washington Post on 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.”
Fed monetary policymakers are widely expected to inch up the central bank’s key short-term interest rate by 0.25 of a percentage point to a target range of 2.25 percent and 2.5 percent when they meet Dec. 18 and 19. It would be the fourth hike this year.
In their last forecast, in September, Fed officials indicated there would be three more such hikes in 2019. But Powell said this month that the central bank could slow its pace of rate hikes if economic growth slows significantly next year.