Northwest Arkansas Democrat-Gazette
POWELL SAYS
patient Fed watching for signs of economic weakness.
JIM TANKERSLEY AND BINYAMIN APPELBAUM ATLANTA — Jerome Powell, the Federal Reserve chairman, said Friday that low inflation would allow the Fed to be “patient” in considering whether to continue raising its benchmark interest rate, giving the central bank more time to assess whether economic growth is slowing and helping to calm jittery financial markets. Wall Street and Main Street have diverged in recent months. Stock prices have dived, prompting warnings that a long-running economic expansion is drawing to a close. But broader measures of economic activity have remained strong, including a report Friday that showed the economy adding 312,000 jobs in December. Powell’s message Friday, delivered at an economics conference in Atlanta, was that the Fed is withholding judgment on the health of the economy. He said he believed it remained healthy, but he also sought to reassure investors that policymakers were watching closely for signs of weakness and were not in a rush to raise rates again. “With the muted inflation readings that we’ve seen coming in, we will be patient as we watch to see how the economy evolves,” he said. The Fed predicted in December that it would raise rates twice in 2019, but Powell said the central bank was ready to change course “significantly if necessary.” Stock prices, which started to climb when the markets opened Friday after the jobs data were released, continued to rise as Powell spoke at the conference, where he shared the stage with his immediate predecessors, Janet Yellen and Ben Bernanke. Powell also sought to ease concerns in financial markets about the Fed’s gradual reduction of its holdings of Treasurys and mortgage bonds, which it bought in
large quantities during the financial crisis to help bolster the economy. Some analysts have argued that the Fed’s retreat, which involves selling the securities, is exacerbating the current volatility in financial markets. Powell said the Fed disagreed with that assessment, but he emphasized that policymakers were paying attention to potential signs of stress and prepared to adapt. “If we ever came to the conclusion that any aspect of our plans” was causing a problem, he said, “we wouldn’t hesitate to change it.” The Fed raised its benchmark rate four times in 2018, to a range from 2.25 percent to 2.5 percent. It is now at the lower end of the range that Fed officials consider a reasonable estimate of “neutrality,” meaning the central bank is neither encouraging nor discouraging economic growth. Critics, including President Donald Trump, have said the economy still needs the Fed’s help. Inflation remains below the 2 percent annual pace the Fed regards as optimal, suggesting that the economy still has room to grow, and workers are only beginning to reap the benefits of an expansion that is now in its 10th year. Trump has repeatedly criticized the Fed for the market’s decline and has complained to aides that the rate increases on Powell’s watch would “turn me into Hoover,” a reference to the president during the Great Depression’s early years. Powell, under questioning by Neil Irwin, an economics writer at The New York Times, suggested that he was open to meeting with Trump, as other Fed chairmen have done with past presidents. Asked if he would resign if Trump asked him to, Powell replied simply, “No.” Powell said that 2018 had been “a good year for the United States economy” and that economic data suggested “ongoing momentum heading into 2019.” He welcomed the increased wage growth included in the jobs report Friday and said it did not “raise concerns about too-high inflation” — a signal to markets that the report was unlikely to accelerate plans for rate increases. Powell also said the decline in stock prices was being driven by fear rather than data. “I think the markets are pricing in downside risks,” he said. “They’re well ahead of the data.”