Pow­ell warns about clo­sure

An ex­tended fed­eral shut­down could way­lay cru­cial data and hurt the econ­omy, the Fed chair­man says.

Los Angeles Times - - BUSINESS - By Jim Puz­zanghera

WASH­ING­TON — Fed­eral Re­serve Chair­man Jerome H. Pow­ell warned on Thursday that an ex­tended par­tial govern­ment shut­down could dam­age the U.S. econ­omy and starve the cen­tral bank of key data it needs to make mon­e­tary pol­icy de­ci­sions.

“If we have an ex­tended shut­down, I do think that would show up in the data pretty clearly,” Pow­ell said dur­ing an ap­pear­ance at the Eco­nomic Club of Wash­ing­ton.

About one-quar­ter of the fed­eral govern­ment has been shut down since Dec. 22 be­cause of a dis­pute over $5.7 bil­lion in fund­ing Pres­i­dent Trump is seek­ing from Con­gress to build a wall on the U.S. bor­der with Mex­ico.

The dis­pute is show­ing no signs of ending af­ter Trump walked out of a Wednesday ne­go­ti­at­ing ses­sion with law­mak­ers af­ter Demo­cratic lead­ers would not agree to his de­mand for the wall fund­ing.

Pow­ell said past govern­ment shut­downs had not caused se­ri­ous eco­nomic dam­age be­cause they were brief.

“If govern­ment shut­downs don’t last very long, they have typ­i­cally not left much of a mark on the econ­omy,” he said. “There’s plenty of per­sonal hard­ship that peo­ple un­dergo, but the ag­gre­gate level of the econ­omy gen­er­ally doesn’t re­flect much dam­age.”

About 800,000 fed­eral work­ers are af­fected by the shut­down, and many will miss their first pay­checks Fri­day.

But a longer shut­down would start to cause dam­age to the econ­omy.

Kevin Has­sett, chair­man of the White House Coun­cil of Eco­nomic Ad­vi­sors, has es­ti­mated the par­tial shut­down will re­duce the na­tion’s to­tal eco­nomic out­put by about a tenth of a per­cent­age point ev­ery two weeks. For con­text, the U.S.

econ­omy is fore­cast to have grown by about 2.8% in the fourth quar­ter of 2018.

Mark Zandi, chief econ­o­mist at Moody’s An­a­lyt­ics, has pre­dicted that a par­tial shut­down that lasts through the end of this month would shave one-tenth to twotenths of a per­cent­age point from to­tal first-quar­ter eco­nomic growth.

The Fed, which is self­funded, is not af­fected by the par­tial shut­down.

But one of the agen­cies that is, the Com­merce Depart­ment, pro­duces some im­por­tant eco­nomic re­ports. The shut­down al­ready has de­layed the re­lease of the monthly for­eign trade sta­tis­tics, which were due out Tuesday.

If the shut­down lasts through this month, more key data on U.S. eco­nomic growth, con­sumer spend­ing and per­sonal in­come also will not be re­leased.

Pow­ell said that would be a prob­lem for Fed of­fi­cials as they tried to as­sess the state of the econ­omy to de­cide on in­ter­est rate pol­icy.

“We would have a less clear pic­ture into the econ­omy if it were to go on much longer,” Pow­ell said.

The Fed chair­man was oth­er­wise mostly up­beat about the U.S. econ­omy, say­ing, “2018 was a very good year.”

“It’s the strong­est growth we’ve had in more than a decade,” he said. “We see con­tin­ued mo­men­tum from the data right through the be­gin­ning of this year.”

But given re­cent con­cerns about slow­ing global growth and trade ten­sions, Pow­ell re­it­er­ated com­ments he made last week that Fed of­fi­cials would be “pa­tient” in de­cid­ing when to en­act an­other in­crease in the cen­tral bank’s bench­mark short-term in­ter­est rate.

The Fed raised the tar­get range of the fed­eral funds rate by 0.25 per­cent­age point last month, the fourth such in­crease in 2018.

At their De­cem­ber meet­ing, Fed mon­e­tary pol­icy mak­ers es­ti­mated they would en­act two more small in­creases this year, but Pow­ell said there was no set plan for ad­di­tional rate hikes.

“The good thing is,” he said, “we’re in a place where we can be pa­tient and flex­i­ble and wait and see what does evolve” with the econ­omy.

Trump has pub­licly crit­i­cized Pow­ell and the Fed for the re­cent rate in­creases, some­thing pres­i­dents rarely do. But Pow­ell said he and his Fed col­leagues “do not take po­lit­i­cal fac­tors into con­sid­er­a­tion in our dis­cus­sions.”

Asked about re­ports that Trump would like to meet with him, Pow­ell said he had not re­ceived any in­vi­ta­tion yet.

“Fed chairs do meet with pres­i­dents. I’m not aware of any Fed chair in my life­time that hasn’t met with the pres­i­dent,” he said. “These meet­ings tend to be rare … and I’m not aware of any Fed chair turn­ing down any in­vi­ta­tion from the White House nor do I think that would be ap­pro­pri­ate.”

Carolyn Kaster As­so­ci­ated Press

CHIEF Jerome H. Pow­ell: “We would have a less clear pic­ture into the econ­omy” if the shut­down drags on.

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