Fed upbeat in report on U.S. economy
WASHINGTON — Federal Reserve officials presented a rosy economic report card to Congress on Friday, playing down risks to growth from trade tensions and declaring that the financial system is “substantially more resilient than during the decade before the financial crisis.”
The Fed released its semiannual Monetary Policy Report just before scheduled testimony before the House and Senate next week by Jerome Powell, the Fed chairman.
The Fed’s report suggests officials are likely to stay on their telegraphed path of gradually raising interest rates to bring them back to historically normal levels. Officials raised rates at their June meeting, to a range of 1.75-2 percent, and signaled that they could raise rates twice more for a total of four rate increases this year.
At times, the report reads like a bit of self-congratulation among Fed officials for their performance in recent years, including steering inflation close to the Fed’s 2 percent annual target, supporting strong economic growth and a low unemployment rate, and pushing Wall Street firms to strengthen their defenses against a potential financial shock.
It drops language from previous reports that stressed worry that inflation would continue to run below the target. It also reaffirms that economic activity “increased at a solid pace” for the first half of the year and that “the labor market has continued to strengthen.”
The report highlights some lingering concerns in the economy, most notably slow wage growth. Adjusted for inflation, earnings for most U.S. workers have not risen in the past year. Other measures, which include employer-provided benefits such as health care, have increased after inflation is factored in, but not by as much as could be expected when the unemployment rate is about 4 percent.
Officials blamed that sluggishness on persistent weakness in labor productivity.
“Those moderate rates of compensation gains likely reflect the offsetting influences of a strong labor market and persistently weak productivity growth,” officials wrote.
The economic development that has most concerned stock markets and economists in recent months — the Trump administration’s escalating trade war with China and allies like Canada, Mexico and the European Union — barely registers in the report as a threat to the recovery.
While noting that trade concerns have rattled stock traders, bond buyers and currency markets, officials said they were confident that the Fed’s current policy path was the right one to handle those concerns.