By Nick Timiraos
WASHINGTON -- Federal Reserve Chairman Jerome Powell told
lawmakers the central bank saw little need to cut interest rates
further after making three reductions since July.
"We see the current stance of monetary policy as likely to
remain appropriate as long as incoming information about the
economy remains broadly consistent with our outlook of moderate
economic growth, a strong labor market" and stable inflation, Mr.
Powell told Congress's Joint Economic Committee on Wednesday.
"Of course, if developments emerge that cause a material
reassessment of our outlook, we would respond accordingly," he
added.
The Fed cut its benchmark interest rate to a range between 1.5%
and 1.75% at its policy meeting two weeks ago to cushion the
economy against risks of a sharp slowdown from weakening business
investment and global growth.
After an especially active few months for monetary policy, Mr.
Powell indicated at a press conference on Oct. 30 that the central
bank was comfortable entering a wait-and-see phase.
He largely repeated that message Wednesday, stressing that Fed
policy wasn't on a preset course. Asked if his statements meant
that the Fed wouldn't change interest rates over the next year, he
said, "I wouldn't say that at all."
Investors don't expect the Fed to cut rates at its final meeting
of the year, on Dec. 10-11, and futures markets see a roughly 50%
probability of one more rate cut by the middle of next year,
according to CME Group.
In a speech Tuesday, President Trump criticized the Fed for
keeping rates too high and said he envied nations in Europe that
have rates below zero. "I want some of that money," said Mr. Trump.
"Our Federal Reserve doesn't let us do it."
Pressed by lawmakers to respond Wednesday, Mr. Powell said, "The
very, very low and even negative rates that we see around the world
would not be appropriate for our economy." Negative rates abroad
occur when "growth is quite low and inflation is quite low."
None of the lawmakers on the committee, which is composed of 10
House members and 10 senators, joined Mr. Trump in criticizing the
Fed.
Mr. Powell repeated his pledge that the Fed wouldn't take
politics into account when it makes policy decisions. He is slated
to testify Thursday before the House Budget Committee.
Fed officials raised short-term interest rates four times last
year to guard against undesirable levels of inflation or financial
bubbles, but they have cut rates three times since July because of
a slowdown in business investment and global growth that the
U.S.-China trade war has amplified.
Mr. Powell said the economy's baseline outlook remains
favorable, partly owing to the Fed's recent rate cuts. He flagged
"noteworthy risks" to the Fed's favorable outlook, namely trade
policy and sluggish growth abroad.
The U.S.-China trade conflict worsened immediately after the Fed
cut rates in July, but the Trump administration took steps last
month to put trade talks back on track. Hopes for a trade truce
have boosted investors' optimism in recent weeks that the economy
can avoid a downturn, with stock prices and long-term bond yields
rising.
Mr. Powell said businesses continue to report that trade-policy
uncertainty "is a real distraction for management," he said. "It's
something that is weighing on business sentiment and ultimately on
the economy."
Fed officials have expected annual economic growth to slow to
around 2% this year from nearly 3% last year. The question now is
whether a contraction in business investment, which fell in the
past two quarters, prompts deeper cutbacks in hiring and a downturn
in consumer confidence and spending, which has buoyed output this
year.
With inflation defying the Fed's forecasts by holding slightly
below the central bank's 2% target this year, Mr. Powell said it is
possible that Fed policy in recent years was supporting the economy
less than officials expected or that the relationship between
job-market slack and inflation had weakened.
"What we have learned...is that the U.S. economy can operate at
a much lower rate of unemployment than many would have thought," he
said. Officials needed to have significant humility, Mr. Powell
added, about the models and forecasts they use to set policy.
Fed officials have highlighted the risk that monetary policy
will have less ability to counteract a future downturn because
short-term interest rates and long-term bond yields are much lower
than in past economic expansions. They are in the middle of a
review of their policy-setting framework with an eye toward making
their tools more potent.
In recent downturns, the Fed has cut its benchmark rate by
around five percentage points. "We don't have that kind of room"
today, said Mr. Powell. "We're too close -- closer than we would
like -- to zero."
As a result, Mr. Powell said lawmakers should be ready for
fiscal policy to support the economy in a downturn.
At the same time, he warned that the long-term path of rising
federal budget deficits and a higher debt load are unsustainable,
which could "restrain fiscal policy makers' willingness or ability
to support economic activity during a downturn."
Write to Nick Timiraos at nick.timiraos@wsj.com
(END) Dow Jones Newswires
November 13, 2019 14:01 ET (19:01 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.