FOR THE DEFENCE
What keeps Fed chief up at night? Everything
Fed chairman Jerome Powell says he believes the central bank’s current pace of gradual rate hikes is the right policy.
WASHINGTON: Federal Reserve chairman Jerome Powell said on Wednesday that he believes the central bank’s current pace of gradually hiking interest rates is the right policy and criticism from President Donald Trump has not altered its approach.
Powell said that even with the Fed’s third hike this year, rates are at a low level that is still boosting growth.
“But the Fed is prepared, if necessary, to raise rates past ‘neutral’ to a level where they are restraining growth,’’ he said.
“But at the moment rates are a long way from neutral.’’
Speaking at a moderated discussion sponsored by The Atlantic magazine, Powell said he has not spoken to Trump about his criticism of the rate hikes.
He said he remains focused on the elements of the economy that the Fed can influence, with the benefit that the central bank is insulated from political pressures.
“We try to get disparate views, try to come to consensus and try to do the right thing,’’ Powell said “We don’t let other things distract us.’’
Powell’s appearance came a week after the central bank boosted its key policy rate for the third time this year to a new range of 2 to 2.25%. The Fed also signaled that it planned to raise rates one more time this year and boost them three more times in 2019.
The Fed also released an updated economic forecast showing that its median estimate for the neutral rate, the point where its policy rate is not stimulating growth or restraining it, was 3%.
The Fed projected that by the end of next year, its policy rate would be just above that level at 3.1% and then rise further to 3.4% in 2020 and remain at that level through 2021, indicating that the central bank expected to raise rates only once in 2020 and then move to the sidelines in a presidential election year.
The Fed has faced criticism from those who believe its pace of rate hikes is too slow, raising the risk that inflation could get out of control. Others have argued that the hikes have come too quickly, raising a risk that the central bank could push the country into a recession.
“We have to take both of those risks very seriously and we do,’’ Powell said. “We’re always going to be looking carefully at incoming data.’’
Powell said that if the economy seemed to be getting stronger with inflation moving up, “then we might move a little quicker’’ than currently expected in hiking rates. But on the other hand, “if we see the economy weakening or inflation moving down ... we might move a little more slowly.’’
Asked what threats keep him up at night, Powell joked, “Basically everything. Nobody wants a central banker who sleeps well.’’
Whenever the next crisis comes, he predicted it will not look like the last one — and there are no signs of financial instability or banking issues — but would be something like a cyber-attack or global event.
Rising protectionism and slowing of an important economy like China would be “bad for American workers and the American economy,” he said.
But if President Trump’s trade confrontations — which so far include cranking up tariffs on half of the goods imported from China — result in lower tariffs and better trade rules, “that will be good for us.”