By Nick Timiraos 

Federal Reserve Chairman Jerome Powell highlighted the growing importance of global developments in monetary policy -- a reflection of how slowing growth abroad could prompt the U.S. central bank to provide new stimulus despite steady labor markets and consumer spending.

In remarks prepared for delivery at a conference in Paris, Mr. Powell also underscored the benefits that the U.S. economic expansion has delivered to a broad range of Americans, including low- and moderate-income communities that haven't always shared as broadly in economic gains.

In two days of testimony on Capitol Hill last week, Mr. Powell signaled the central bank is ready to cut interest rates later this month to cushion the economy against rising risks from slower global growth and trade-policy uncertainty. He largely repeated the same outlook in his remarks Tuesday.

Most Fed officials judged at the central bank's June meeting that rising uncertainty and muted inflation "strengthens the case for a somewhat more accommodative stance of policy," Mr. Powell said Tuesday. Officials "will act as appropriate to sustain the expansion."

The Fed chairman focused his remarks Tuesday on broader shifts in the economic backdrop that predated the 2008 financial crisis, but may have been accelerated by its upheaval.

Mr. Powell said the crisis had exposed rising importance that central banks must place on global linkages, even though policy makers must follow mandates to boost domestic growth.

"The global nature of the financial crisis and the channels through which it spread sharply highlight the interconnectedness of our economic, financial, and policy environments," he said. "U.S. economic developments affect the rest of the world, and the reverse is also true."

Pursuing domestic mandates "requires that we understand the anticipated effects of these interconnections and incorporate them into our policy decisionmaking," he said.

He said long-running forces that have contributed to lower rates of interest, inflation and growth appear likely to persist, creating new challenges for central banks that have traditionally relied on rate cuts to spur growth during downturns.

The challenges policy makers face in the coming decades could be very different from the problems faced by a prior generation of central banks, he said.

"Trend inflation, productivity and interest rates were declining well before the crisis. But for monetary policymakers in that era, the threat of high inflation felt proximate, the hard-fought battle to control high inflation having been just recently won," said Mr. Powell.

Meantime, the risk that interest rates might fall and stay near zero was "mainly a theoretical concern" outside of Japan, he said.

Now, more than a decade after the financial crisis, the challenges central banks face are "discretely different" as a result of lower interest rates, inflation and growth, Mr. Powell said.

The risk that central bankers will be unable to cut interest rates significantly to stimulate growth in a downturn will require greater use of other tools, such as bond-buying programs or increased verbal guidance about the most likely future policy path, Mr. Powell said.

One result is that central bank communication will be more important and more difficult than before the 2008 financial crisis.

"Gone are the days when the Federal Reserve chair could joke, as my predecessor Alan Greenspan did, 'If I turn out to be particularly clear, you've probably misunderstood what I said,'" Mr. Powell said. "Central banks must speak to Main Street, as well as Wall Street, in ways we have not in the past."

Write to Nick Timiraos at nick.timiraos@wsj.com

(END) Dow Jones Newswires

July 16, 2019 13:25 ET (17:25 GMT)

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